<PAGE> 1
[PROVIDENT MUTUAL LETTERHEAD]
Dear Policyholder:
We are pleased to send you the annual report for one of the Fund groups from
your variable annuity contract or variable life insurance policy. In additional
mailings, you will also be receiving the annual reports for other Fund groups in
which you have invested. The investments available through your variable
contract are being managed by some of the best fund management companies in the
country.
Your variable insurance product is unique in that it combines the protection and
tax advantages of traditional insurance with the growth potential of equity
investments. A leader in the variable products marketplace, Provident Mutual
Life Insurance Company can trace its roots back to 1717, giving us the
distinction of serving America's life insurance needs longer than any other
company. Our financial strength enables us to continually offer a variety of
life insurance policies and annuity contracts designed to help you meet your
financial planning goals, including retirement planning, college funding, and
estate planning.
We are proud to include you among our policyholders, and we appreciate your
business. If you have a question about your policy, or would like more
information about our products and services, please contact your local agent or
our Customer Service Center at 1-800-688-5177.
Sincerely,
/s/ Robert W. Kloss
Robert W. Kloss
President
<PAGE> 2
- --------------------------------------------------------------------------------
To Our Variable Life Policyholders and Variable Annuity Contractholders:
- --------------------------------------------------------------------------------
We are pleased to send you the 1997 Annual Report of the Market Street Fund
Inc., its Growth, Money Market, Bond, Managed, Aggressive Growth, International
and Sentinel Growth Portfolios.
On May 1,1997 Sentinel Advisors Company succeeded Newbold's Asset Management
Inc. as adviser to the Market Street Fund Growth Portfolio. On December 12,
1997, the Common Stock Portfolio of the Market Street Fund which was also
managed by Sentinel Advisors and had the same investment objectives was merged
into the larger Market Street Growth Portfolio. This was done to provide owners
of the Common Stock Portfolio potentially higher returns through lower expenses
and greater investment flexibility available to portfolios of larger size. In
1998 we are looking forward to introducing some exciting investment options to
the Market Street Fund, Inc.
Economic Overview and Investment Perspective
Economic conditions in the U.S., during 1997 were almost picture perfect for all
investors. The economy experienced a strong 3.7% growth, a small 2% rate of
inflation and a low 4.6% unemployment rate. The S&P 500 gained 33.4% during the
year, dispelling fears that it could not achieve above 20% returns for three
consecutive years. Bond investors experienced the best returns since 1995. The
yield on the thirty year U.S. Treasury bond declined from 6.64% at the beginning
of the year to 5.92% at the end of the year. The Lehman Brothers aggregate bond
index, a benchmark used by most investment professionals raked up a total return
of 9.4% up from 1996's return of 3.6%. Investor's greatest disappointments were
in the international markets. During 1997 the Morgan Stanley Capital
International Europe, Australia, Far East (EAFE) Index returned a paltry 1.8% in
U.S. dollars terms. The sharp declines in the Asian markets began in the second
half of the year with currency devaluations by a number of countries.
Fortunately, this did not have a major impact in Europe.
Once again, the question most investors are asking is whether the party is over,
and once again we cannot provide that answer. Going into 1998, the outlook is
filled with many uncertainties. Although general economic consensus calls for
moderate growth, and modest inflation, the big unknowns are the impact of the
Asian turmoil and the impending European Monetary Union slated for the latter
part of the year. We expect volatility in the stock market where prices will be
torn between low interest rates and a softening of profits. On a positive front,
for the first time in nearly thirty years, the U.S. budget is expected to show a
surplus, a development which may reduce the Treasury's borrowing needs and keep
interest rates low.
In this environment of uncertainty we urge you to remain a long term, patient
investor and take comfort and pride in the conservative, value oriented
management styles of our investment advisers.
Review of Fund Portfolio Performance
The Annual reviews and performance charts* for each portfolio (other than the
Money Market Portfolio) contained in this Annual Report show the growth of
$10,000 over the period shown, assuming reinvestment of all dividends. The
performance is then compared to a relevant index. As always, it is important to
recall in interpreting these results that the advisers of the equity portfolios
of the Market Street Fund do not engage in market timing. That is to say that in
all but times of great market turmoil, they endeavor to keep the vast majority
of portfolio assets invested in common stocks. Thus, they attempt to add value
by stock selection utilizing the methods and in the markets specified in the
Fund Prospectus. Their
1
<PAGE> 3
performance should be judged according to how well they do relative to market
indices measuring the same type of activity.
We appreciate the opportunity to have served you in the past and look forward to
serving you in 1998 and many years into the future.
/s/ Rosanne Gatta
Rosanne Gatta
President
The Market Street Fund, Inc.
*Past performance is not predictive of future results. Moreover, the
relationship between the performance of the Fund Portfolios and the actual
increases or decreases in a policy's cash value is not directly proportional
due to certain charges deducted from premiums and under the policies which are
not reflected in the above figures. Please see the current prospectus for an
explanation of these charges and for illustrations which take such charges into
account in calculating cash values.
2
<PAGE> 4
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of the Market Street Fund, Inc.:
We have audited the accompanying statements of net assets of Market Street Fund,
Inc., (comprising, respectively, the Growth, Money Market, Bond, Managed,
Aggressive Growth, International, Common Stock and Sentinel Growth Portfolios)
as of December 31, 1997, and the related statements of operations for the year
or period then ended and for the period ended December 12, 1997 for the Common
Stock Portfolio, the statements of changes in net assets for each of the two
years or periods then ended and the two periods in the period ended December 12,
1997 for the Common Stock Portfolio and financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1997, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Market Street Fund, Inc. as of
December 31, 1997, the results of their operations for the year or period then
ended and for the period ended December 12, 1997 for the Common Stock Portfolio,
the changes in their net assets for each of the two years or periods then ended
and the two periods in the period ended December 12, 1997 for the Common Stock
Portfolio and the financial highlights for each of the periods presented in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 10, 1998
3
<PAGE> 5
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
1997 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
For the eight months since Sentinel Advisors assumed management
responsibilities, the Market Street Growth Portfolio produced a total return of
18.1%. This figure was below the 18.7% average return for the universe of Lipper
Growth & Income Funds during the eight month period ended December 31, 1997. For
the year the portfolio returned 24.32%.
While the domestic stock market produced another year of impressive
returns, with 1997 the third successive year of 20% plus gains for the major
equity indices, the latter part of the year was particularly volatile. Most of
the market's gains were made in the earlier portion of the year, with little
headway made during the fall, a period of increasing unease in the international
financial markets.
Within the past year, the stock market has shifted favor between large and
small stocks and among various market sectors. The largest capitalization issues
performed well during the earlier part of the year before a pronounced shift in
favor to small caps this past summer. This trend has apparently reversed of
late, with the shares of larger companies, which constitute the bulk of the
Growth Portfolio's holdings, once again dominating at year-end.
Technology issues were strong throughout most of the year and the
Portfolio's relatively limited exposure to this sector negatively impacted
relative performance. However, some of our concerns about the valuation levels
of many of these stocks and the sustainability of profit margins in the midst of
falling product prices and excessive capacity growth are proving valid. The
Asian market turmoil has also begun to take a toll on technology issues. As a
result, the gap in performance between the Portfolio and its peer group that had
developed during August and September as a result of a technology stock rally
and a shift into smaller capitalization issues has narrowed considerably.
Once again the financial sector is strong and the Growth Portfolio's ample
representation here impacted performance positively as our holding in banks,
insurance companies and diversified financial companies enjoyed substantial
appreciation. The Portfolio also had excellent gains in its advertising and
publishing related holdings. Within the energy sector, the Portfolio's holdings
in oil service were strong relative performers despite recent profit taking.
Also beneficial was the Portfolio's limited exposure to highly cyclical, basic
commodity industries such as papers, metals and mining, which despite compelling
valuation levels, continued to perform poorly in an environment of excess
capacity and weak pricing.
With a number of high-flying stocks giving back some of their gains as the
year came to a close, investors sought refuge in more defensive issues such as
utility shares, and consumer staples stocks including foods and pharmaceuticals.
The Market Street Growth Portfolio has significant representation in these
areas, especially the electric utilities, which have exhibited relative strength
in recent months amid increased investor uncertainty and an ongoing bond market
rally.
4
<PAGE> 6
Looking ahead to 1998, we expect the trends of modest economic growth and
restrained inflation to continue. While this environment should be generally
favorable for common stocks, given what appear to be somewhat lofty valuation
levels and high investor expectations for corporate earnings, we must once again
urge investor caution about extrapolating recent exceptional stock market
returns indefinitely into the future.
As mentioned above, the Portfolio participated in a positive way from the
market's preference for larger capitalization issues. In our stock selection
processes, we have increasingly found better values in some of the mid-cap
stocks and have been selectively adding to our holdings of some of these high
quality issues. The Portfolio maintains a value focus, with a dividend yield
above that of the overall market and price to earnings ratios and other
valuation measures below those of the averages. At the same time, we continue to
focus on those companies with strong finances, good fundamental operating
environments and the ability to deliver consistent and relatively strong
earnings growth. We believe that the Market Street Growth Portfolio's
conservative approach will continue to serve our shareholders well in both the
strong market environments investors have grown accustomed to, and the more
difficult periods that may lie ahead. We appreciate your continued support.
Richard A. Pender, CFA
Daniel J. Manion, CFA
[MARKET STREET FUND GROWTH PORTFOLIO GRAPH]
+ The Index is the S&P 500 Index, an unmanaged index of 500 U.S. common stocks
that includes reinvestment of dividends.
* Inception date was December 12, 1985.
5
<PAGE> 7
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception*
<S> <C> <C>
24.32% 16.95% 14.18%
</TABLE>
<TABLE>
<CAPTION>
Fund Index**
<S> <C> <C>
Start 10000 10000
"85" 10177 10077
"86" 11325 11941
"87" 11511 12540
"88" 13641 14580
"89" 17794 19131
"90" 18220 18485
"91" 21590 24115
"92" 22614 25948
"93" 24924 28558
"94" 25522 28933
"95" 33279 39811
"96" 39794 48928
"97" 49472 65260
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 8
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 95.0%
Aerospace -- 2.3%
Goodrich (B.F.) Co................................................................. 118,500 $ 4,910,344
Boeing Co.......................................................................... 25,392 1,242,621
------------
6,152,965
------------
Automobiles -- 2.0%
Ford Motor Co...................................................................... 111,000 5,404,312
------------
Banks -- 9.0%
Bank of New York Co., Inc.......................................................... 81,400 4,705,937
BankAmerica Corp................................................................... 59,000 4,307,000
Chase Manhattan Corp............................................................... 42,000 4,599,000
Citicorp........................................................................... 28,300 3,578,181
First Union Corp................................................................... 89,500 4,586,875
Morgan (J.P.) & Co., Inc........................................................... 20,000 2,257,500
------------
24,034,493
------------
Building Materials -- 1.7%
Sherwin Williams Co................................................................ 165,000 4,578,750
------------
Business & Consumer Services -- 2.3%
Omnicom Group, Inc................................................................. 145,600 6,169,800
------------
Computers Products -- 2.0%
Hewlett Packard Co................................................................. 85,000 5,312,500
------------
Consumer Products -- 5.1%
Fortune Brands, Inc................................................................ 154,000 5,707,625
Kimberly-Clark Corp................................................................ 105,500 5,202,469
Rubbermaid, Inc.................................................................... 105,300 2,632,500
------------
13,542,594
------------
Containers -- 0.6%
*Bemis Co., Inc.................................................................... 38,900 1,714,031
------------
Drug -- 3.9%
American Home Products Corp........................................................ 68,700 5,255,550
Pfizer, Inc........................................................................ 68,600 5,114,987
------------
10,370,537
------------
Electrical Equipment -- 3.2%
Emerson Electric Co................................................................ 78,400 4,424,700
General Electric Co................................................................ 56,000 4,109,000
------------
8,533,700
------------
Electronic Instruments -- 1.7%
Avnet, Inc......................................................................... 67,000 4,422,000
------------
</TABLE>
6
<PAGE> 9
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Energy -- 7.8%
Amoco Corp......................................................................... 38,000 $ 3,234,750
Chevron Corp....................................................................... 37,000 2,849,000
Exxon Corp......................................................................... 78,000 4,772,625
Mobil Corp......................................................................... 73,700 5,320,219
Royal Dutch Petroleum Co........................................................... 87,400 4,735,987
------------
20,912,581
------------
Finance -- 4.5%
American Express Co................................................................ 66,300 5,917,275
Travelers Group, Inc............................................................... 111,750 6,020,531
------------
11,937,806
------------
Foods -- 4.8%
CPC International, Inc............................................................. 50,700 5,475,600
*McCormick & Co. Inc............................................................... 25,800 722,400
Sara Lee Corp...................................................................... 115,500 6,504,094
------------
12,702,094
------------
Lodging -- 1.1%
Marriott International, Inc........................................................ 44,300 3,067,775
------------
Industrial Diversified -- 7.6%
Crown Cork & Seal Co., Inc......................................................... 103,400 5,182,925
Parker-Hannifin Corp............................................................... 142,800 6,550,950
Rockwell International Corp........................................................ 63,400 3,312,650
Praxair, Inc....................................................................... 117,000 5,265,000
------------
20,311,525
------------
Insurance -- 7.0%
Allstate Corp...................................................................... 63,300 5,752,387
American General Corp.............................................................. 92,500 5,000,781
American International Group, Inc.................................................. 47,300 5,143,875
Jefferson-Pilot Corp............................................................... 37,000 2,881,375
------------
18,778,418
------------
Machinery & Instrumentation -- 1.8%
Deere & Co......................................................................... 85,000 4,956,562
------------
Medical Equipment & Supplies -- 1.9%
Johnson & Johnson.................................................................. 76,000 5,006,500
------------
Oil Field Equipment & Services -- 3.3%
Halliburton Co..................................................................... 88,500 4,596,469
Schlumberger Ltd................................................................... 52,700 4,242,350
------------
8,838,819
------------
</TABLE>
7
<PAGE> 10
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Publishing -- 3.1%
Gannett, Inc....................................................................... 78,000 $ 4,821,375
McGraw-Hill, Inc................................................................... 47,500 3,515,000
------------
8,336,375
------------
Railroads -- 3.3%
Canadian Pacific, Ltd.............................................................. 169,000 4,605,250
Union Pacific Corp................................................................. 69,400 4,333,163
------------
8,938,413
------------
Retail -- 3.0%
May Department Stores Co........................................................... 58,000 3,055,875
Sears, Roebuck & Co................................................................ 110,000 4,977,500
------------
8,033,375
------------
Tobacco -- 1.0%
Philip Morris Cos., Inc............................................................ 57,500 2,605,469
------------
Utilities-Electric -- 7.1%
Duke Power Co...................................................................... 105,300 5,830,988
Florida Progress Crop.............................................................. 99,000 3,885,750
FPL Group, Inc..................................................................... 66,500 3,935,969
Pacificorp......................................................................... 193,000 5,271,313
------------
18,924,020
------------
Utilities-Gas -- 2.2%
Enron Corp......................................................................... 79,000 3,283,438
Sonat, Inc. ....................................................................... 58,100 2,658,075
------------
5,941,513
------------
Utilities-Telephone -- 1.7%
GTE Corp........................................................................... 85,500 4,467,375
------------
TOTAL COMMON STOCK (COST $216,071,652)........................................... 253,994,302
------------
PREFERRED STOCK -- 0.7%
Microsoft Corp., Preferred Series A Convertible, 2.75%............................. 22,000 1,977,250
------------
TOTAL PREFERRED STOCK (COST $1,874,124).......................................... 1,977,250
------------
</TABLE>
8
<PAGE> 11
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER
MATURITY OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 4.4%
Merrill Lynch & Co., Inc., 5.90%..................................... 01/05/98 $1,700,000 $ 1,698,886
Merrill Lynch & Co., Inc., 6.00%..................................... 01/08/98 4,000,000 3,995,333
Associates Corp. of North America, 5.95%............................. 01/13/98 1,000,000 998,017
Pitney Bowes Credit Corp., 5.845%.................................... 01/20/98 5,000,000 4,984,576
------------
TOTAL COMMERCIAL PAPER (COST $11,676,812).......................... 11,676,812
------------
SHORT-TERM INVESTMENTS -- 0.3%
Temporary Investment Fund, Inc. -- TempCash......................... 883,397 883,397
------------
TOTAL SHORT-TERM INVESTMENTS (COST $883,397)....................... 883,397
------------
TOTAL INVESTMENTS -- 100.4% (COST $230,505,985).................... 268,531,761
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4)%........................ (1,142,430)
------------
NET ASSETS -- 100.0%
(Equivalent to $19.46 per share based on 13,741,784 shares of capital
stock outstanding)................................................. $267,389,331
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($267,389,331/13,741,784 shares outstanding)......................... $ 19.46
=============
</TABLE>
* Non-income producing.
See accompanying notes to financial statements.
9
<PAGE> 12
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Money Market Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- 2.3%
CoreStates Bank, N.A. 5.72%........................................... 01/26/98 $1,500,000 $ 1,500,000
-----------
TOTAL CERTIFICATE OF DEPOSIT (COST $1,500,000)...................... 1,500,000
-----------
COMMERCIAL PAPER -- 94.9%
Agriculture Production-Livestock & Animal Special -- 3.1% Cargill, Inc.,
5.58%................................................................. 01/07/98 2,000,000 1,998,140
-----------
Bank -- 28.9%
BankAmerica Corp., 5.59%.............................................. 01/08/98 1,000,000 998,913
BankAmerica Corp., 5.53%.............................................. 01/20/98 2,000,000 1,994,163
Bank of New York, 5.80%............................................... 01/16/98 1,500,000 1,496,375
CoreStates Capital Corp., 5.67%....................................... 01/05/98 1,500,000 1,499,055
Morgan (J.P.) & Co., Inc., 5.60%...................................... 01/06/98 3,400,000 3,397,356
NationsBank Corp., 5.73%.............................................. 02/19/98 3,000,000 2,976,602
National City Credit Corp., 5.75%..................................... 02/05/98 3,000,000 2,983,229
Northern Trust Co. (Chicago), 5.68%................................... 01/22/98 1,250,000 1,245,858
Northern Trust Co. (Chicago), 5.73%................................... 02/17/98 2,000,000 1,985,038
-----------
18,576,589
-----------
Brokerage -- 5.3%
Merrill Lynch & Co., Inc., 5.65%...................................... 01/28/98 3,400,000 3,385,592
-----------
Finance -- 39.9%
Associates Corp. of North America, 5.69%.............................. 02/02/98 3,000,000 2,984,827
Commercial Credit Corp., 5.77%........................................ 02/06/98 2,500,000 2,485,575
Deere (John) Capital Corp., 5.53%..................................... 01/14/98 2,250,000 2,245,507
Deere (John) Capital Corp., 5.60%..................................... 01/14/98 500,000 498,989
General Electric Capital Corp., 5.82%................................. 01/16/98 1,500,000 1,496,362
General Electric Capital Corp., 5.72%................................. 02/09/98 1,500,000 1,490,705
GTE Finance Corp., 6.12%.............................................. 01/20/98 3,300,000 3,289,341
Norwest Corp., 5.53%.................................................. 01/15/98 3,300,000 3,292,903
Pitney Bowes Credit Corp., 5.845%..................................... 01/22/98 3,150,000 3,139,260
Prudential Funding Corp., 5.55%....................................... 01/09/98 2,250,000 2,247,225
Transamerica Financial Corp., 5.71%................................... 01/27/98 2,500,000 2,489,690
-----------
25,660,384
-----------
Consumer Finance -- 7.7%
Beneficial Corp., 6.06%............................................... 01/12/98 2,000,000 1,996,297
Household Finance Corp., 5.55%........................................ 01/23/98 3,000,000 2,989,825
-----------
4,986,122
-----------
Industrial -- 4.6%
Avnet, Inc., 5.85%.................................................... 02/13/98 3,000,000 2,979,038
-----------
</TABLE>
10
<PAGE> 13
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Money Market Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER OF
MATURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Oil -- 2.3% Texaco, Inc., 5.82%......................................... 01/08/98 $1,500,000 $ 1,498,303
-----------
Utility - Electric -- 3.1%
Virginia Electric & Power, 5.77%...................................... 01/16/98 2,000,000 1,995,192
-----------
TOTAL COMMERCIAL PAPER (COST $59,581,057)........................... 61,079,360
-----------
SHORT-TERM INVESTMENTS -- 3.3%
Temporary Investment Fund, Inc. -- TempCash........................... 2,101,346 2,101,346
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $2,101,346)...................... 2,101,346
-----------
TOTAL INVESTMENTS -- 100.5% (COST $64,680,706)...................... 64,680,706
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.5)%......................... (341,795)
-----------
NET ASSETS -- 100.0%
(Equivalent to $1.00 per share based on 64,338,969 shares of capital
stock outstanding).................................................. $64,338,911
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($64,338,911/64,338,969 shares outstanding)........................... $ 1.00
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 14
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
1997 Annual Review
Sentinel Advisor Company
- --------------------------------------------------------------------------------
For the year ended December 31, 1997 the Market Street Bond Portfolio
produced a total return of 9.50%. This was slightly below the 9.65% return of
the Lehman Aggregate Index, which is considered a good proxy for the overall
bond market.
The ten year U.S. Treasury peaked at 6.98% on April 14, 1997, following a
25 basis point tightening by the Federal Reserve in mid March. From there, long
term interest rates commenced a relatively steady descent, as the market became
increasingly comfortable with the concept of the "new age" economy,
characterized by reasonably strong growth, low unemployment and limited
inflationary pressures. Year over year, short rates rose 10 to 20 basis points
while long rates (as measured by the U.S. Treasury Index) declined 30 basis
points, causing long maturity securities to significantly outperform short dated
assets. The Market Street Bond Portfolio, with its limited exposure to the 30
year area and its near five year duration, slightly underperformed during most
of this period.
The decline in rates was briefly interrupted in mid summer when various
economic statistics came in somewhat stronger than expected, but resumed their
decline shortly after Labor Day when the market began to detect signs of
economic slowing. The final thrust downward occurred in mid October when the
currency crisis in Southeast Asia spread to Hong Kong, and the Hong Kong dollar.
Events in Hong Kong precipitated a massive sell off in worldwide equity markets,
and a flight to quality ensued, pushing U.S. Treasury prices upward and causing
rates to drop sharply again. Expectations of reduced economic growth in many
Asian countries, in the wake of the recent currency crisis, and the resultant
forecasts of slower economic growth in the U.S., further fueled the decline in
rates occurring in the last month and a half of the year.
Corporate bond spreads narrowed throughout the year as the demand for
spread product was unrelenting. However, this trend reversed temporarily when
the threat to the Hong Kong dollar emerged. As the environment in Asia began to
stabilize, spreads began to tighten again, albeit to somewhat wider levels than
existed before the situation first developed.
12
<PAGE> 15
While a number of recent economic statistics are indicative of a
strengthening economy, and even suggestive of a Fed tightening, the situation in
Asia is likely to have a noticeable buffeting effect on U.S. output beginning
some time in the first half of 1998. Given the uncertain outlook for the U.S.
economy and interest rates, we intend to maintain the fund's interest rate
sensitivity.
Richard D. Temple
[MARKET STREET FUND CHART]
+ The index is the Lehman Aggregate Bond Index, an unmanaged index of bonds
reflecting average prices in the bond market.
* Inception date was December 12, 1985.
13
<PAGE> 16
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception*
<S> <C> <C>
9.50% 7.15% 7.91%
</TABLE>
<TABLE>
<CAPTION>
Fund Index**
<S> <C> <C>
Start 10000 10000
"85" 10225 10187
"86" 11864 11742
"87" 11583 12066
"88" 12330 13018
"89" 13633 14909
"90" 14683 16245
"91" 16728 18844
"92" 17724 20239
"93" 19553 22564
"94" 18454 21892
"95" 22228 25941
"96" 22863 26883
"97" 25036 29477
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 17
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BONDS -- 9.6%
U.S. Treasury Bonds, 6.00%............................................. 02/15/26 $1,500,000 $ 1,496,910
U.S. Treasury Bonds, 6.375%............................................ 08/15/27 700,000 738,668
----------
TOTAL U.S. TREASURY BONDS (COST $2,213,204).......................... 2,235,578
----------
U.S. TREASURY NOTES -- 24.2%
U.S. Treasury Notes, 5.50%............................................. 12/31/00 250,000 248,502
U.S. Treasury Notes, 7.50%............................................. 02/15/05 2,000,000 2,198,240
U.S. Treasury Notes, 6.875%............................................ 05/15/06 1,500,000 1,604,640
U.S. Treasury Notes, 6.125%............................................ 08/15/07 500,000 513,720
U.S. Treasury Notes, 7.25%............................................. 08/15/04 500,000 540,445
U.S. Treasury Notes, 7.00%............................................. 07/15/06 500,000 539,615
----------
TOTAL U.S. TREASURY NOTES (COST $5,455,883).......................... 5,645,162
----------
AGENCY OBLIGATIONS -- 19.3%
Collaterized Mortgage Obligation Trust, 7.95%.......................... 05/01/17 380,583 391,595
Federal Home Loan Mortgage Corp., 6.50%................................ 05/01/08 466,599 467,474
Federal Home Loan Mortgage Corp., 8.00%................................ 11/01/08 421,809 435,913
Federal Home Loan Mortgage Corp., 7.50%................................ 12/01/11 469,293 481,612
Federal Home Loan Mortgage Corp., 9.00%................................ 11/01/16 3,516 3,735
Federal Home Loan Mortgage Corp., 8.00%................................ 03/01/17 32,330 33,411
Federal National Mortgage Association, 7.00%........................... 09/01/04 489,168 495,741
Federal National Mortgage Association, 7.50%........................... 12/01/06 366,263 375,305
Federal National Mortgage Association, 7.50%........................... 12/01/07 403,957 414,435
Federal National Mortgage Association, 7.00%........................... 09/01/12 968,432 982,656
Government National Mortgage Association, 8.50%........................ 02/15/02 399,654 416,640
----------
TOTAL AGENCY OBLIGATIONS (COST $4,466,230)........................... 4,498,517
----------
CORPORATE BONDS -- 41.5%
Broker -- 5.8%
Lehman Brothers Holdings, Inc., 8.50%.................................. 08/01/15 500,000 578,125
Salomon, Inc., 6.88%................................................... 12/15/03 375,000 382,031
Salomon, Inc., Senior Notes, 7.20%..................................... 02/01/04 375,000 389,531
----------
1,349,687
----------
Financial Institutions -- 5.0%
First Union Corp., 6.82%............................................... 08/01/06 600,000 631,500
Provident Capital Trust I, 8.60%....................................... 12/01/26 500,000 531,250
----------
1,162,750
----------
</TABLE>
14
<PAGE> 18
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Foreign Financial Institutions -- 9.0%
Banque Nationale de Paris, 7.74%....................................... 12/05/07 $1,000,000 $ 1,015,000
BCH Cayman Islands Ltd., 7.70%......................................... 07/15/06 500,000 530,000
Midland Bank Plc, 7.65%................................................ 05/01/25 500,000 551,250
----------
2,096,250
----------
Industrial Diversified -- 1.8%
Dimon, Inc. Senior Notes, 8.86%........................................ 06/01/06 400,000 432,000
----------
Insurance -- 3.0%
Farmers Insurance Exchange, 8.63%...................................... 05/01/24 600,000 695,250
----------
Telecommunications -- 8.8%
Comcast Cable Communications, 8.34%.................................... 05/01/07 500,000 556,875
Comsat Corp. Medium Term Note, 8.05%................................... 12/13/06 500,000 562,830
Continental Cablevision Senior Notes, 8.30%............................ 05/15/06 850,000 932,875
----------
2,052,580
----------
Utilities -- 7.8%
New Orleans Public Service, Inc., 8.00%................................ 03/01/06 500,000 532,500
Niagara Mohawk Power Corp., 8.50%...................................... 07/01/23 500,000 521,875
Western Resources, Inc., 6.88%......................................... 08/01/04 750,000 767,812
----------
1,822,187
----------
Utilities - Gas -- 0.3%
Consolidated Natural Gas Co., 8.63%.................................... 12/01/11 77,000 80,657
----------
TOTAL CORPORATE BONDS (COST $9,301,918).............................. 9,691,361
----------
COMMERCIAL PAPER -- 3.4%
Merrill Lynch & Co., Inc., 5.85%....................................... 01/30/98 800,000 796,230
----------
TOTAL COMMERCIAL PAPER (COST $796,230)............................... 796,230
----------
</TABLE>
15
<PAGE> 19
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 3.1%
Temporary Investment Fund, Inc. -- TempCash.......................................... 730,641 $ 730,641
-----------
TOTAL SHORT TERM INVESTMENTS (COST $730,641)....................................... 730,641
-----------
TOTAL INVESTMENTS -- 101.1% (COST $22,964,106)..................................... 23,597,489
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.1)%........................................ (247,119)
-----------
NET ASSETS -- 100.0%
(Equivalent to $10.59 per share based on 1,788,901 shares of capital stock
outstanding)....................................................................... $23,350,370
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($23,350,370/2,126,639 shares outstanding)........................................... $ 10.98
===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 20
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
1997 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
The Market Street Managed Portfolio produced a total return of 21.23% for
the year ended December 31, 1997. The Portfolio's results were modestly above
the 19.0% return of the average balanced fund as measured by Lipper Analytical
Services, and fell between the 33.4% return for the Standard & Poor's 500 and
the 9.7% return for the Lehman Aggregate Bond Index.
The last twelve months were again a period of extraordinary volatility in
the financial markets. The bond market was particularly fitful, dropping on any
hint of robust economic activity, and rallying back when the mist cleared and
the slow growth, low inflation environment again appeared intact. The ten year
Treasury yield zigged and zagged between 6% and 7% for most of the year, but by
year end, the strong "flight to quality" rally in the Treasury market resulted
in the ten year and thirty year bond yields falling below 6%. The stock market
achieved well above average returns for the third consecutive year; stocks have
not declined even for a calendar quarter since late in 1994. The ride in the
stock market was also a wild one, with a very strong technology rally in the
summer, a 500 point decline in the Dow Jones Industrial Average on a single day
in October, a year end recovery rally, and a decided shift behind the major
market averages from a more speculative, growth oriented market earlier in the
year to a safe-haven, defensive stance as the international financial turmoil
increased in the fall.
The Market Street Managed Portfolio began the year with a mix of 54%
stocks, 36% bonds and 10% cash. Early in the year, most of the cash position was
moved into longer term investments, which impacted performance positively in
light of the strong returns in both the stock and bond markets. As of December
31, 1997, the Portfolio's asset allocation was 59% stocks, 34% bonds and 7%
cash. During the year, the Portfolio again benefited from its long standing
positions in the financial services sector, as well as a meaningful position in
energy service companies. However, results for the stock portion overall lagged
the market modestly, due primarily to a significantly underweighted position in
the strong, volatile technology sector. Although the de-emphasis of technology
stocks hurt performance during the summer months, a significant correction in
that sector as the year came to a close positively impacted the Portfolio's
relative performance.
Looking ahead to 1998, we continue to expect that the economy will grow at
a more moderate rate than has been the case in the last several years, and that
inflation should remain restrained. The financial turmoil in the lesser
developed countries of Asia, and coincident currency weakness, will likely lead
to a tougher export market for U.S. companies. As well, they will likely face a
more difficult environment at home competing with cheap imports. This will
hinder Corporate America's ability to raise prices, keeping inflation in the low
range of recent years. While the lower growth, low inflation environment
suggests a continued positive outlook for the fixed income markets, the
potential for slower earnings growth may keep a lid on equities. We do not
anticipate a repeat of the extraordinary stock market returns of the last
17
<PAGE> 21
three years, and believe that a disciplined, value oriented focus on quality
companies with consistent earnings growth profiles will be the key to successful
stock market investing next year.
We continue to believe that a balanced investment program, with diversified
exposure to both the stock and bond markets, will serve our shareholders well.
We appreciate your continuing support of our efforts.
Rodney A. Buck, CFA
Richard A. Pender, CFA
Richard D. Temple
[MARKET STREET FUND GRAPH]
* The Index is the Lehman Aggregate Bond Index, an unmanaged index of bonds
reflecting average prices in the bond market.
+ The Index is the S&P 500 Index, an unmanaged index of 500 U.S. common stocks
that includes reinvestment of dividends.
* Inception date was December 12, 1985.
18
<PAGE> 22
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception*
<S> <C> <C>
21.23% 13.09% 10.41%
</TABLE>
<TABLE>
<CAPTION>
Fund LA Index** S&P Index+
<S> <C> <C> <C>
Start 10000 10000 10000
"85" 10299 10187 10077
"86" 11543 11742 11941
"87" 11481 12066 12540
"88" 12631 13018 14580
"89" 14482 14909 19131
"90" 13235 16245 18485
"91" 15947 18844 24115
"92" 17854 20239 25948
"93" 19928 22564 28558
"94" 19566 21892 28933
"95" 24346 25941 39811
"96" 27238 26863 48928
"97" 33020 29477 65260
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 23
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 58.1%
Aerospace -- 1.4%
Boeing Co. ........................................................................ 3,572 $ 174,805
Goodrich (B.F.) Co. ............................................................... 14,500 600,844
-----------
775,649
-----------
Automobiles -- 1.3%
Ford Motor Co. .................................................................... 14,400 701,100
-----------
Banks -- 5.1%
Bank of New York Co., Inc. ........................................................ 11,000 635,937
BankAmerica Corp. ................................................................. 7,200 525,600
Chase Manhattan Corp. ............................................................. 3,840 420,480
Citicorp........................................................................... 3,600 455,175
First Union Corp. ................................................................. 11,000 563,750
Morgan (J.P.) & Co., Inc. ......................................................... 2,500 282,187
-----------
2,883,129
-----------
Building Materials -- 0.9%
Sherwin Williams Co. .............................................................. 19,000 527,250
-----------
Business & Consumer Services -- 1.7%
Omnicom Group, Inc. ............................................................... 21,800 923,775
-----------
Computer Products -- 1.2%
Hewlett Packard Co. ............................................................... 11,000 687,500
-----------
Consumer Products -- 3.0%
Fortune Brands, Inc. .............................................................. 18,500 685,656
Kimberly-Clark Corp. .............................................................. 13,000 641,062
Rubbermaid, Inc. .................................................................. 15,000 375,000
-----------
1,701,718
-----------
Containers -- 0.4%
*Bemis Co., Inc. .................................................................. 4,800 211,500
-----------
Drugs -- 2.7%
American Home Products Corp. ...................................................... 9,500 726,750
Pfizer, Inc. ...................................................................... 10,200 760,537
-----------
1,487,287
-----------
Electrical Equipment -- 3.0%
Emerson Electric Co. .............................................................. 10,800 609,525
General Electric Co. .............................................................. 6,900 506,287
Grainger (W.W.), Inc. ............................................................. 5,800 563,687
-----------
1,679,499
-----------
</TABLE>
19
<PAGE> 24
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Energy -- 4.2%
Amoco Corp. ....................................................................... 6,400 $ 544,800
Exxon Corp. ....................................................................... 9,500 581,281
Mobil Corp. ....................................................................... 9,400 678,562
Royal Dutch Petroleum Co. ......................................................... 10,500 568,969
-----------
2,373,612
-----------
Financial -- 2.0%
American Express Co. .............................................................. 6,500 580,125
Travelers Group, Inc. ............................................................. 9,750 525,281
-----------
1,105,406
-----------
Foods -- 2.8%
CPC International, Inc. ........................................................... 7,000 756,000
*McCormick & Co., Inc. ............................................................ 3,500 98,000
Sara Lee Corp. .................................................................... 12,800 720,800
-----------
1,574,800
-----------
Industrial Diversified -- 5.1%
Crown Cork & Seal Co., Inc. ....................................................... 12,000 601,500
Dover Corp. ....................................................................... 10,000 361,250
Parker-Hannifin Corp. ............................................................. 17,500 802,812
Praxair, Inc. ..................................................................... 14,000 630,000
Rockwell International Corp. ...................................................... 9,400 491,150
-----------
2,886,712
-----------
Insurance -- 3.9%
Allstate Corp. .................................................................... 6,500 590,687
American General Corp. ............................................................ 10,300 556,844
American International Group, Inc. ................................................ 5,550 603,562
Equitable of Iowa.................................................................. 5,500 428,312
-----------
2,179,405
-----------
Lodging -- 0.7%
Marriott International, Inc. ...................................................... 6,000 415,500
-----------
Medical Equipment & Supplies -- 1.4%
Johnson & Johnson.................................................................. 11,600 764,150
-----------
Oil Field Equipment & Services -- 2.8%
Chevron Corp. ..................................................................... 5,100 392,700
Halliburton Co. ................................................................... 11,000 571,313
Schlumberger Ltd. ................................................................. 7,500 603,750
-----------
1,567,763
-----------
</TABLE>
20
<PAGE> 25
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Publishing -- 2.3%
Gannett, Inc. ..................................................................... 10,200 $ 630,488
McGraw-Hill, Inc. ................................................................. 8,700 643,800
-----------
1,274,288
-----------
Railroads -- 2.8%
Canadian Pacific Ltd. ............................................................. 22,000 599,500
Illinois Central Corp. ............................................................ 11,850 403,641
Union Pacific Corp. Series A....................................................... 8,800 549,450
-----------
1,552,591
-----------
Retail -- 2.0%
May Department Stores Co. ......................................................... 8,000 421,500
Sears, Roebuck & Co. .............................................................. 15,000 678,750
-----------
1,100,250
-----------
Tobacco -- 0.6%
Philip Morris Cos., Inc. .......................................................... 7,800 353,438
-----------
Utilities - Electric -- 4.3%
Duke Power Co. .................................................................... 13,500 747,563
Florida Progress Corp. ............................................................ 13,000 510,250
FPL Group, Inc. ................................................................... 8,700 514,931
Pacificorp......................................................................... 24,000 655,500
-----------
2,428,244
-----------
Utilities - Gas -- 1.5%
Enron Corp. ....................................................................... 11,000 457,188
Sonat, Inc. ....................................................................... 8,700 398,025
-----------
855,213
-----------
Utilities - Telephone -- 1.0%
GTE Corp. ......................................................................... 11,000 574,750
-----------
TOTAL COMMON STOCK (COST $21,091,702)............................................ 32,584,529
-----------
PREFERRED STOCK -- 0.4%
Microsoft Corp., Preferred Series A Convertible, 2.75%............................. 2,700 242,663
-----------
TOTAL PREFERRED STOCK (COST $215,888)............................................ 242,663
-----------
</TABLE>
21
<PAGE> 26
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BONDS -- 1.0%
U.S. Treasury Bonds, 6.25%.............................................. 08/15/27 $ 500,000 $ 527,620
-----------
TOTAL U.S. TREASURY BONDS (COST $496,053)............................. 527,620
-----------
U.S. TREASURY NOTES -- 4.6%
U.S. Treasury Notes, 6.125%............................................. 08/15/07 500,000 513,720
U.S. Treasury Notes, 6.50%.............................................. 05/31/02 500,000 514,485
U.S. Treasury Notes, 6.50%.............................................. 05/31/07 1,500,000 1,535,250
-----------
TOTAL U.S. TREASURY NOTES (COST $2,559,847)........................... 2,563,455
-----------
AGENCY OBLIGATIONS -- 15.7%
Collateralized Mortgage Obligation Trust, 7.95%......................... 05/01/17 380,583 391,595
Federal Home Loan Mortgage Corp., 9.50%................................. 03/01/06 209,948 220,182
Federal Home Loan Mortgage Corp., 8.00%................................. 11/01/08 421,809 435,913
Federal Home Loan Mortgage Corp., 6.50%................................. 01/01/11 785,140 786,613
Federal Home Loan Mortgage Corp., 7.50%................................. 12/01/11 469,293 481,612
Federal National Mortgage Association, 7.00%............................ 11/18/07 227,460 234,000
Federal National Mortgage Association, 7.50%............................ 12/01/07 131,073 134,841
Federal National Mortgage Association, 7.00%............................ 03/01/08 459,481 414,435
Federal National Mortgage Association, 7.75%............................ 03/01/08 459,481 466,230
Federal National Mortgage Association, 7.75%............................ 05/01/08 2,000,000 2,033,832
Government National Mortgage Association, 8.50%......................... 02/15/02 480,704 501,134
Government National Mortgage Association, 8.00%......................... 03/15/07 453,000 470,978
Government National Mortgage Association, 8.00%......................... 08/15/08 471,647 490,366
Government National Mortgage Association, 7.75%......................... 07/15/26 707,747 729,422
Government National Mortgage Association, 7.50%......................... 10/15/27 998,373 1,023,020
-----------
TOTAL AGENCY OBLIGATIONS (COST $8,743,345)............................ 8,814,173
-----------
CORPORATE BONDS -- 13.1%
Broker -- 2.0%
Lehman Brothers Holdings, Inc., 8.50%................................... 08/01/15 500,000 578,125
Salomon, Inc., Senior Notes, 7.20%...................................... 02/01/04 250,000 259,688
Salomon, Inc., 6.875%................................................... 12/15/03 250,000 254,688
-----------
1,092,501
-----------
Financial Institutions -- 2.1%
First Union Corp., 6.824%............................................... 08/01/06 600,000 631,500
Provident Capital Trust I, 8.60%........................................ 12/01/26 500,000 531,250
-----------
1,162,750
-----------
</TABLE>
22
<PAGE> 27
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
MATURITY OR SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Foreign Financial Institutions -- 2.9%
Banque Nationale de Paris, 7.738%....................................... 01/15/07 $ 500,000 $ 507,500
BCH Cayman Islands Ltd, 7.70%........................................... 07/15/06 500,000 530,000
Midland Bank Plc, 7.650%................................................ 05/01/25 550,000 606,375
-----------
1,643,875
-----------
Industrial Diversified -- 0.8%
Dimon, Inc. Senior Notes, 8.875%........................................ 06/01/06 400,000 432,000
-----------
Insurance -- 1.4%
Farmers Insurance Exchange, 8.625%...................................... 05/01/24 700,000 811,125
-----------
Telecommunications -- 3.0%
Comcast Cable Communications, 8.375%.................................... 05/01/07 500,000 556,875
Comsat Corp. Medium Term Note, 8.05%.................................... 12/13/06 500,000 562,830
Continental Cablevision Senior Notes, 8.30%............................. 05/15/06 500,000 548,750
-----------
1,668,455
-----------
Utilities -- 0.9%
Niagara Mohawk Power Corp., 8.50%....................................... 07/01/23 500,000 521,875
-----------
TOTAL CORPORATE BONDS (COST $7,037,274)............................... 7,332,581
-----------
COMMERCIAL PAPER -- 7.1%
C.I.T. Financial Corp., 6.05%........................................... 01/05/98 1,700,000 1,698,857
Merrill Lynch & Co., Inc., 5.58%........................................ 01/30/98 2,300,000 2,289,161
-----------
TOTAL COMMERCIAL PAPER (COST $3,988,018).............................. 3,988,018
-----------
SHORT-TERM INVESTMENTS -- 0.6%
Temporary Investment Fund, Inc. -- TempCash............................. 347,019 347,019
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $347,019).......................... 347,019
-----------
TOTAL INVESTMENTS -- 100.6% (COST $44,479,146)........................ 56,400,058
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES -- (0.6)%........................... (332,549)
-----------
NET ASSETS -- 100.0%
(Equivalent to $17.06 per share based on 3,286,248 shares of capital
stock outstanding).................................................... $56,067,509
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($56,067,509/3,286,248 shares outstanding).............................. $ 17.06
===========
</TABLE>
* Non-income producing.
See accompanying notes to financial statements.
23
<PAGE> 28
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
1997 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
We are pleased to report that the Market Street Fund Aggressive Growth
Portfolio returned 21.21% for the twelve month period ending December 31, 1997.
This performance compares favorably to the 20.8% average return of the Lipper
Small Company funds although it was somewhat behind the 22.2% returned by the
Russell 2000 index.
Looking forward to 1998, the portfolio's investments will continue to be
focused on companies that are solving problems for their customers. Companies
with products or services that provide attractive solutions to customers' needs
should enjoy the increasingly rare ability to increase unit volume and preserve
pricing power. Of course, we also will continue to seek exposure to those small
companies that are poised to benefit from important long term trends. More
specifically, we continue to favor selected health care opportunities related to
drug delivery and the manufacturing of supplies for the biotechnology and
pharmaceutical industries. As for technology, we are focused on companies that
will benefit from the growth of electronic commerce and the large need for more
efficient (paperless) document storage/ retrieval systems. Computer service
companies also are likely to prosper due to the often underestimated corporate
and government need to address Year 2000 software problems, migrate from
mainframe to client server applications and establish Internet capabilities.
Although the energy service stocks recently have been under selling pressure due
to lower crude oil prices, we continue to believe that this industry is in the
midst of a secular boom that probably has several more years of duration. As
long as oil prices do not collapse, the need of major oil companies to replace
reserves coupled with the much lower finding costs that have resulted from
technology should continue to fuel growth for this industry. Selected retailers
and other companies with exposure to relatively affluent consumers also should
continue to prosper. Finally, our preference for shares of quality small
companies that have developed or are developing strong brand names or attractive
franchises is expected to remain a rewarding long term investment strategy.
We believe the portfolio will continue to be served well by its broad
diversification and bias towards attractively valued, financially sound and well
managed small companies that have realistic prospects for superior growth. Our
investment approach is designed to result in less volatility than the average
small company fund, yet produce long term returns that are better than most
small company funds. Your continued confidence in our efforts is appreciated.
Scott T. Brayman, CFA
Robert L. Lee, CFA
24
<PAGE> 29
[MARKET STREET FUND AGGRESSIVE GROWTH GRAPH]
+ The Index is the Russell 2000 Index, an unmanaged stock index of small
capitalization companies which includes reinvestment of all income.
* Inception date was May 1, 1989.
25
<PAGE> 30
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception*
<S> <C> <C>
21.21% 11.85% 14.69%
</TABLE>
<TABLE>
<CAPTION>
Fund Index**
<S> <C> <C>
Start 10000 10000
"89" 10558 10340
"90" 11695 6324
"91" 18283 12161
"92" 18755 14399
"93" 19730 17120
"94" 19730 16808
"95" 22389 21599
"96" 27091 25171
"97" 32837 30767
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 31
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 92.9%
Banks -- 7.1%
Cullen Frost Bankers, Inc. ............................................................ 15,000 $ 910,312
Mercantile Bankshares Corp. ........................................................... 36,500 1,428,062
Wilmington Trust Corp. ................................................................ 18,000 1,122,750
---------
3,461,124
---------
Beverages -- 1.4%
*Chalone Wine Group Ltd. .............................................................. 10,000 117,500
*Robert Mondavi Corp., Class A......................................................... 11,000 536,250
---------
653,750
---------
Business & Consumer Services -- 10.4%
*Affiliated Computer Services, Inc. ................................................... 25,800 678,862
Analysts International Corp. .......................................................... 28,950 998,775
*Caci International, Inc. ............................................................. 26,000 515,125
*Healthcare Services Group............................................................. 48,500 612,312
*Sterling Commerce, Inc. .............................................................. 30,000 1,153,125
Tyco International Ltd. ............................................................... 24,000 1,081,500
---------
5,039,699
---------
Communications -- 1.4%
*Dynatech Corp. ....................................................................... 14,000 656,250
---------
Cosmetics and Toiletries -- 3.0%
Alberto-Culver Co. Class A............................................................. 54,600 1,474,200
---------
Drug Delivery -- 2.8%
*Scherer (R.P.) Corp. ................................................................. 22,000 1,342,000
---------
Electronics -- 4.6%
Harman International Industries, Inc. ................................................. 26,800 1,137,325
Methode Electronics, Inc. Class A...................................................... 68,000 1,105,000
---------
2,242,325
---------
Energy -- 1.3%
*Calenergy Co., Inc. .................................................................. 22,000 632,500
---------
Environmental Control -- 5.9%
Calgon Carbon Corp. ................................................................... 42,100 452,575
Donaldson Co., Inc. ................................................................... 26,000 1,171,625
*Tetra Technologies, Inc. ............................................................. 58,000 1,221,625
---------
2,845,825
---------
Financial -- 1.4%
Duff & Phelps Credit Rating Co. ....................................................... 17,000 690,625
---------
</TABLE>
26
<PAGE> 32
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Food & Food Distributors -- 5.3%
Goodmark Foods, Inc. .................................................................. 32,000 $ 592,000
Smart & Final, Inc. ................................................................... 21,000 378,000
Tootsie Roll Industries, Inc. ......................................................... 26,000 1,625,000
---------
2,595,000
---------
Healthcare Providers -- 3.0%
*Genesis Health Ventures, Inc. ........................................................ 37,000 975,875
HealthPlan Services Corp. ............................................................. 24,000 504,000
---------
1,479,875
---------
Industrial Diversified -- 6.9%
*Bush Boake Allen, Inc. ............................................................... 40,000 1,047,500
Cambrex Corp. ......................................................................... 17,000 782,000
Computational Systems, Inc. ........................................................... 27,000 794,812
Lawter International, Inc. ............................................................ 35,500 386,063
*Material Sciences Corp. .............................................................. 28,300 344,906
---------
3,355,281
---------
Insurance -- 3.4%
Enhance Financial Services Group, Inc. ................................................ 9,500 565,250
Executive Risk, Inc. .................................................................. 7,500 523,594
Life Re Corp. ......................................................................... 9,000 586,688
---------
1,675,532
---------
Manufacturing Diversified -- 2.7%
*AptarGroup, Inc. ..................................................................... 18,500 1,026,750
*Cannondale Corp. ..................................................................... 13,000 282,750
---------
1,309,500
---------
Medical Equipment & Supplies -- 6.9%
Ballard Medical Products............................................................... 29,000 703,250
Hillenbrand Industries, Inc. .......................................................... 23,000 1,177,313
Life Technologies, Inc. ............................................................... 32,000 1,064,000
Minntech Corp. ........................................................................ 33,000 408,375
---------
3,352,938
---------
Oil Field Equipment & Services -- 4.2%
Halliburton Co. ....................................................................... 20,000 1,038,750
*Smith International, Inc. ............................................................ 16,000 982,000
---------
2,020,750
---------
Railroads -- 0.3%
*Railtex, Inc. ........................................................................ 11,000 157,438
---------
</TABLE>
27
<PAGE> 33
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Real Estate -- 2.3%
Chateau Communities, Inc. ............................................................. 36,000 $ 1,134,000
---------
Restaurants -- 4.7%
*Applebee's International, Inc. ....................................................... 18,000 325,125
*Ruby Tuesday, Inc. ................................................................... 38,800 999,100
Sbarro, Inc. .......................................................................... 36,000 947,250
---------
2,271,475
---------
Retail - Clothing and Apparel -- 6.2%
*Gymboree Corp. ....................................................................... 18,000 492,750
*Lands' End, Inc. ..................................................................... 35,000 1,227,188
*The Wet Seal, Inc., Class A........................................................... 43,000 1,268,500
---------
2,988,438
---------
Retail Stores -- 5.1%
Casey General Stores, Inc. ............................................................ 34,000 862,750
Ethan Allen Interiors, Inc. ........................................................... 41,700 1,608,056
---------
2,470,806
---------
Software -- 2.6%
*Filenet Corp. ........................................................................ 42,000 1,265,250
---------
TOTAL COMMON STOCK (COST $35,138,885)................................................ 45,114,581
---------
PREFERRED STOCK -- 0.2%
Phoenix Duff & Phelps Preferred Convertible
Series A, $1.50...................................................................... 2,500 71,563
---------
TOTAL PREFERRED STOCK (COST $71,441)................................................. 71,563
---------
</TABLE>
28
<PAGE> 34
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER OF
MATURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 7.2%
American Express Credit Corp., 6.00%.................................. 01/07/98 $2,300,000 $ 2,297,700
C.I.T. Group Holdings, Inc., 5.54%.................................... 01/02/98 1,200,000 1,199,815
----------
TOTAL COMMERCIAL PAPER (COST $3,497,515)............................ 3,497,515
----------
SHORT-TERM INVESTMENTS -- 1.3%
Temporary Investment Fund, Inc. -- TempCash........................... 653,453 653,453
----------
TOTAL SHORT-TERM INVESTMENTS (COST $653,453)........................ 653,453
----------
TOTAL INVESTMENTS -- 101.6% (COST $39,361,294)...................... 49,337,112
----------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.6)%......................... (763,007)
----------
NET ASSETS -- 100.0%
(Equivalent to $22.19 per share based on 2,188,797 shares of capital
stock outstanding).................................................. $48,574,105
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($48,574,105/2,188,797 shares outstanding)............................ $ 22.19
==========
</TABLE>
* Non-income producing.
See accompanying notes to financial statements.
29
<PAGE> 35
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Equity Portfolio
1997 Annual Review
The Boston Company Asset Management, Inc.
- --------------------------------------------------------------------------------
In 1997, the Market Street Fund International Portfolio outperformed the
MSCI EAFE Index, returning 9.66% compared with the EAFE Index, net of dividends,
which returned 1.8%. The strong U.S. dollar reduced local returns in nearly all
of the major markets. The major exception to the trend was in the United Kingdom
where the pound remained exceptionally strong.
The two most significant factors influencing performance expectations in the
new year are concerns over global growth due to the turmoil in Asia and economic
and political preparations for the European Monetary Union. Estimates of the
impact on global growth from the Asian crisis are a vigorously debated topic.
The consensus view is that in 1998 the Asian tigers will only grow 1%. The IMF's
expectation for Japan has been reduced to 1.1%, while South Korea's GDP growth
rate has been slashed from 6% in 1997 to 1.5% in 1998.
The problems in Asia have not impacted Europe to any significant extent.
Economic growth in 1998 is likely to be in the 2.5%-3% range. Growth is likely
to be at the higher end of the range in the continent and lower in the United
Kingdom which is at a more advanced stage of the economic cycle. As Europe
continues toward full unification we see a great deal of opportunity for
increased efficiency. In the Portfolio, some of our favorite companies are
already looking for ways to exploit these macro events. In Japan, our emphasis
has been on value stocks of companies which are able to compete in the world
market place.
We remain optimistic on value investing abroad both in EAFE and emerging
markets. Last year we generated returns substantially above the benchmark and we
will strive to do the same in 1998.
[MARKET STREET FUND INTERNATIONAL PORTFOLIO GRAPH]
+ The Index is the Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index, an unmanaged index of more than 900 companies from these
regions. The EAFE Index reflects the prices of these common stocks translated
into U.S. dollars with dividends reinvested net of any foreign taxes.
* Inception date was November 1, 1991.
30
<PAGE> 36
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception*
<S> <C> <C>
9.66% 13.66% 9.06%
</TABLE>
<TABLE>
<CAPTION>
Fund Index**
<S> <C> <C>
Start 10000 10000
"91" 9712 10030
"92" 9003 8806
"93" 12254 11677
"94" 12286 12585
"95" 14044 13994
"96" 15573 14834
"97" 17078 15101
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 37
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK -- 95.3%
Argentina -- 0.9%
YPF Sociedad Anonima ADR........................................................... 17,000 $ 581,187
-----------
Australia -- 2.5%
Australia & New Zealand Bank Group Ltd............................................. 107,363 709,594
Boral Ltd.......................................................................... 227,175 574,523
ICI Australia Ltd.................................................................. 39,500 276,771
-----------
1,560,888
-----------
Austria -- 0.9%
*Bank Austria AG................................................................... 8,000 215,890
*Bank Austria AG -- Preferred.................................................... 8,400 380,030
-----------
595,920
-----------
Brazil -- 0.2%
Telecom Brasil Sp ADR.............................................................. 1,200 139,725
-----------
Denmark -- 0.9%
Tele Danmark ADR................................................................... 17,500 539,219
-----------
France -- 12.2%
Alcatel Alsthom ADR................................................................ 32,016 810,405
AXA - UAP.......................................................................... 7,000 544,587
Bongrain........................................................................... 400 168,967
C.S.F. (Thomson-C.S.F.)............................................................ 14,419 453,936
CLF - Dexia France................................................................. 5,000 582,904
Danone............................................................................. 4,504 815,709
Elf Aquitaine ADR.................................................................. 17,751 1,040,652
Michelin (CGDE).................................................................... 8,075 405,294
Pechinery SA....................................................................... 9,000 355,929
Rhone Poulenc SA ADR............................................................... 12,295 545,591
Societe Generale................................................................... 5,728 779,229
Television Franchise, Inc.......................................................... 7,000 715,949
Usinor Sacilor..................................................................... 27,000 387,061
-----------
7,606,213
-----------
Germany -- 10.7%
Bayer AG........................................................................... 19,900 743,967
Berliner Kraft-und Licht Aktiengesellschaft........................................ 7,750 234,548
Deutsche Bank AG................................................................... 11,500 812,517
Deutsche Lufthansa AG.............................................................. 24,000 460,640
GEA AG............................................................................. 1,600 605,285
Hoechst AG......................................................................... 6,000 210,292
Hugo Boss AG....................................................................... 230 294,298
</TABLE>
31
<PAGE> 38
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK (CONTINUED)
Germany (Continued)
Siemens AG......................................................................... 17,000 $ 1,007,232
Tarkett AG......................................................................... 15,000 346,314
Veba AG............................................................................ 13,250 902,990
Viag AG............................................................................ 1,200 646,898
Volkswagen......................................................................... 800 450,403
-----------
6,715,384
-----------
Greece -- 0.5%
*Hellenic Telecommunications....................................................... 32,000 328,000
-----------
Hong Kong -- 1.9%
Guoco Group Ltd.................................................................... 76,000 185,868
Hong Kong Electric................................................................. 110,000 418,081
HSBC Holdings Plc.................................................................. 14,390 354,736
Swire Pacific Ltd. B............................................................... 200,000 202,620
-----------
1,161,305
-----------
Italy -- 4.5%
Ente Nazionale Idrocarburi SpA..................................................... 11,000 627,688
Fiat SpA........................................................................... 115,500 336,427
Istituto Mobiliare Italiano ADR.................................................... 12,000 429,000
Mondadori (Arnoldo) Editore SpA.................................................... 21,000 165,256
Montedison SpA..................................................................... 425,000 381,125
Telecom Italia SpA................................................................. 200,000 863,928
-----------
2,803,424
-----------
Japan -- 24.8%
Canon, Inc......................................................................... 38,000 885,550
Credit Saison Co................................................................... 36,500 900,958
Dai-Tokyo Fire and Marine Insurance................................................ 117,000 401,809
Fuji Machine....................................................................... 18,000 434,649
Hitachi Ltd........................................................................ 75,000 534,688
Honda Motor Co. Ltd................................................................ 18,000 660,943
Ito-Yokado Co. Ltd................................................................. 15,000 764,661
Kao Corp........................................................................... 65,000 936,757
Mabuchi Motors..................................................................... 11,200 569,230
Matsumotokiyoshi................................................................... 9,000 344,960
Mikuni Coca-Cola Bottling Co. Ltd.................................................. 36,000 449,828
Mineba Co. Ltd..................................................................... 82,000 880,031
Mitsubishi Heavy industries Ltd.................................................... 110,000 458,720
Murata Manufacturing Co. Ltd....................................................... 24,000 608,969
Namco Ltd.......................................................................... 11,000 319,586
</TABLE>
32
<PAGE> 39
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK (CONTINUED)
Japan (Continued)
Nishimatsu Construction............................................................ 65,000 $ 204,293
Ono Pharmaceutical................................................................. 8,000 148,409
Rinnai Corp........................................................................ 28,000 422,844
Rohm Co. Ltd....................................................................... 5,000 502,108
Sankyo Co. Ltd..................................................................... 19,000 278,191
Sekisui Chemical Co................................................................ 65,000 330,356
Sekisui House...................................................................... 48,000 308,716
Sony Corp.......................................................................... 11,000 978,153
Toshiba Corp....................................................................... 120,000 499,502
Toyota Motor Corp.................................................................. 21,000 602,070
Yamanouchi Pharmaceuticals......................................................... 29,000 622,461
Yamato Transportation.............................................................. 46,000 617,095
-----------
15,493,440
-----------
Korea -- 0.1%
*Kookmin Bank GDR.................................................................. 14,317 81,607
-----------
Netherlands -- 5.9%
ABN Amro Holding................................................................... 31,425 617,180
AKZO N.V. ADR...................................................................... 7,500 651,563
Hollandsche Beton.................................................................. 21,079 391,121
Hunter Douglas N.V................................................................. 13,925 487,905
Koninklijke K.N.P.................................................................. 24,000 555,440
KPN ADS............................................................................ 13,090 543,235
Philips Electronics N.V. ADR....................................................... 7,500 453,750
-----------
3,700,194
-----------
New Zealand -- 0.3%
Air New Zealand.................................................................... 101,091 203,504
-----------
Norway -- 0.5%
Orkla.............................................................................. 4,000 310,985
-----------
Peru -- 0.5%
Telefonica del Peru S.A. ADR....................................................... 13,200 307,725
-----------
Portugal -- 0.6%
Banco Totta & Acores - Reg B....................................................... 18,000 353,344
-----------
Singapore -- 1.3%
Development Bank................................................................... 60,000 515,821
Singapore Airlines................................................................. 42,000 275,821
-----------
791,642
-----------
</TABLE>
33
<PAGE> 40
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK (CONTINUED)
Spain -- 4.6%
Corporacion Bancaria de Espanol ADR................................................ 29,000 $ 886,313
Endesa SA.......................................................................... 22,300 404,256
Gas y Electricidad, SA............................................................. 8,591 620,696
Repsol ADR......................................................................... 22,000 936,375
-----------
2,847,640
-----------
Sweden -- 2.3%
Marieberg Tidnings AB.............................................................. 18,000 421,609
Pharmacia & Upjohn, Inc. ADR....................................................... 21,400 783,775
Scania AB, Class A ADR............................................................. 8,000 176,000
Scania AB, Class B ADR............................................................. 3,000 66,000
-----------
1,447,384
-----------
Switzerland -- 3.7%
Forbo Holdings - Registered Shares................................................. 700 286,527
Nestle SA - Registered Shares...................................................... 550 825,471
Sulzer AG - Registered Shares...................................................... 630 399,986
Union Bank Switzerland - Registered Shares......................................... 550 796,435
-----------
2,308,419
-----------
United Kingdom -- 15.5%
BTR Ordinary Plc................................................................... 240,823 729,145
Bunzl Plc.......................................................................... 175,146 681,599
Cable & Wireless ADR............................................................... 15,000 407,813
Laird Group Ordinary............................................................... 82,000 600,443
Lucasvarity Plc.................................................................... 230,300 814,761
Medeva Plc......................................................................... 127,000 338,545
National Westminster Bank.......................................................... 57,801 962,542
Powergen Plc....................................................................... 73,443 957,136
Royal & Sun Alliance Insurance Group Plc........................................... 110,106 1,110,634
RTZ Corp........................................................................... 62,845 774,552
Safeway Plc........................................................................ 147,270 831,201
Stakis Plc......................................................................... 265,000 414,255
Tomkins Plc........................................................................ 230,277 1,091,292
-----------
9,713,918
-----------
TOTAL COMMON AND PREFERRED STOCK (COST $55,858,949).............................. 59,591,067
-----------
</TABLE>
34
<PAGE> 41
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 2.3%
Temporary Investment Fund, Inc.--TempCash.......................................... 1,410,410 $ 1,410,410
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,410,410)................................... 1,410,410
-----------
TOTAL INVESTMENTS -- 97.6% (COST $57,269,359).................................... 61,001,477
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.4%........................................ 1,511,979
-----------
NET ASSETS -- 100.0%
(Equivalent to $13.61 per share based on 4,592,651 shares of capital stock
outstanding)..................................................................... $62,513,456
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($62,513,456/4,592,651 shares outstanding)......................................... $ 13.61
===========
</TABLE>
* Non-income producing.
See accompanying financial statements.
35
<PAGE> 42
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
1997 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
The Market Street Sentinel Growth Portfolio earned a total return of 31.6%
during the year ended December 31, 1997. The average fund in the Lipper Growth
Fund universe earned a 25.3% return and the Standard & Poor's 500 produced a
33.4% return. We are pleased with the results of the Portfolio this year as the
Market Street Sentinel Growth Portfolio finished the twelve month period in the
top 25% of all growth funds in the Lipper universe.
As you are no doubt aware, the stock market was extremely volatile during
1997. Fortunately, the Portfolio was able to benefit from that volatility by
moving quickly to take advantage of attractive investment opportunities
throughout the year in certain key market sectors. Early in the year, several of
our holdings in the semiconductor equipment industry doubled in price, producing
substantial gains for the fund. At mid-year, we decided to sell most of our
holdings in this sector because we felt that the stocks had reached fair value.
The decision to reduce our positions served us well in the second half of the
year when the equipment stocks traded down to significantly lower prices.
Similar opportunities arose in the biotechnology and water treatment industries.
Another tactic that served us well during the year was our decision to
reduce our holdings in large capitalization stocks. The stocks of large
companies, such as Intel and Johnson & Johnson, performed extremely well early
in the year and, by the end of May, were no longer inexpensive. We decided at
that time to concentrate our new purchases in the less expensive mid-size sector
of the market. Mid-cap stocks performed strongly in the second half of the year
and our focus on this market segment contributed in part to the Portfolio's
strong results in the July through October time frame.
The common theme underlying our approach is a continued emphasis on owning
companies that are market leaders (preferably market dominant) in growth
industries. Typically, our largest sector weights are in the fastest growing
areas of the market such as financial services, technology, health care, and
consumer growth stocks. With regard to individual holdings, we seek to own
"franchise" companies that are selling at modest price/earnings and price/cash
flow multiples and are demonstrating positive
36
<PAGE> 43
revenue and earnings trends. Risk is buffered by the Portfolio's broad
diversification and an aggregate price/earnings multiple that is close to that
of the overall market.
We appreciate your continued support and look forward to helping you
achieve your goal of long term capital appreciation.
Robert L. Lee, CFA
[SENTINEL GROWTH GRAPH]
+ The index is the S&P 500 Index, an unmanaged index of 500 U.S. common stocks
that include reinvestment of dividends.
* Inception date was March 18, 1996.
37
<PAGE> 44
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year Inception*
<S> <C>
31.58% 23.83%
</TABLE>
<TABLE>
<CAPTION>
Fund Index**
<S> <C> <C>
Start 10000 10000
"96" 11140 11760
"97" 14658 15685
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 45
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 93.5%
Aerospace -- 2.1%
*Goodrich (B.F.) Co. ................................................................... 4,300 $ 178,181
----------
Banks -- 9.9%
BankAmerica Corp. ...................................................................... 2,500 182,500
Citicorp................................................................................ 1,400 177,012
Cullen Frost Bankers, Inc. ............................................................. 2,000 121,375
First Union Corp. ...................................................................... 1,600 82,000
Mercantile Bankshares Corp. ............................................................ 6,700 262,137
----------
825,024
----------
Biotechnology -- 1.6%
Amgen Corp. ............................................................................ 2,500 135,312
----------
Business & Consumer Services -- 5.4%
Analysts International Corp. ........................................................... 2,550 87,975
Omnicom Group, Inc. .................................................................... 6,400 271,200
*Sterling Commerce, Inc. ............................................................... 2,400 92,250
----------
451,425
----------
Computer Products -- 0.6%
Hewlett Packard Co. .................................................................... 800 50,000
----------
Drug Delivery -- 4.3%
*Scherer (R.P.) Corp. .................................................................. 1,400 85,400
Schering Plough Corp. .................................................................. 4,400 273,350
----------
358,750
----------
Electronics -- 0.6%
Methode Electronics, Inc. Class A....................................................... 1,800 29,250
Motorola, Inc. ......................................................................... 400 22,825
----------
52,075
----------
Energy -- 1.7%
Mobil Corp. ............................................................................ 2,000 144,375
----------
Finance -- 4.2%
American Express Co. ................................................................... 2,800 249,900
SLM Holding............................................................................. 700 97,387
----------
347,287
----------
Healthcare Services -- 3.0%
Columbia/HCA Healthcare Corp. .......................................................... 8,450 250,331
----------
Lodging -- 1.7%
Marriott International, Inc............................................................. 2,100 145,425
----------
</TABLE>
38
<PAGE> 46
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Industrial Diversified -- 2.6%
Crown Cork & Seal Co., Inc. ............................................................ 1,500 $ 75,187
Parker-Hannifin Corp. .................................................................. 3,100 142,212
----------
217,399
----------
Insurance -- 8.0%
Allstate Corp. ......................................................................... 2,800 254,450
Enhance Financial Services Group, Inc. ................................................. 1,300 77,350
Executive Risk, Inc. ................................................................... 1,400 97,738
Jefferson-Pilot Corp. .................................................................. 1,900 147,963
Life Re Corp. .......................................................................... 1,400 91,263
----------
668,764
----------
Manufacturing -- 0.9%
AptarGroup, Inc. ....................................................................... 1,300 72,150
----------
Medical Equipment & Supplies -- 4.4%
Dentsply International, Inc. ........................................................... 6,200 189,100
Hillenbrand Industries, Inc. ........................................................... 3,500 179,156
----------
368,256
----------
Oil Field Equipment -- 7.8%
Chevron Corp. .......................................................................... 2,800 215,600
Halliburton Co. ........................................................................ 3,400 176,588
Schlumberger Ltd. ...................................................................... 3,200 257,600
----------
649,788
----------
Publishing -- 3.1%
McGraw-Hill, Inc. ...................................................................... 3,500 259,000
----------
Restaurants -- 4.9%
*Outback Steakhouse, Inc. .............................................................. 2,300 66,125
*Ruby Tuesday, Inc. .................................................................... 6,800 175,100
Sbarro, Inc. ........................................................................... 6,400 168,400
----------
409,625
----------
Retail Stores -- 7.8%
CVS Corp. .............................................................................. 2,400 153,750
Ethan Allen Interiors, Inc. ............................................................ 5,000 192,813
Staples, Inc. .......................................................................... 5,300 147,075
TJX Companies, Inc. .................................................................... 4,700 161,563
----------
655,201
----------
</TABLE>
39
<PAGE> 47
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Retail Clothing and Apparel -- 2.5%
*Gymboree Corp. ........................................................................ 2,500 $ 68,438
*Lands' End, Inc. ...................................................................... 2,000 70,125
*The Wet Seal, Inc., Class A............................................................ 2,500 73,750
----------
212,313
----------
Software -- 3.7%
*Microsoft Corp. ....................................................................... 2,400 310,200
----------
Semiconductors & Semiconductor Equipment -- 2.5%
*Applied Materials, Inc. ............................................................... 3,500 105,437
*KLA-Tencor Corp. ...................................................................... 2,700 104,287
----------
209,724
----------
Telecommunications -- 4.2%
*Airtouch Communications, Inc. ......................................................... 4,700 195,344
Lucent Technologies, Inc. .............................................................. 1,900 151,763
----------
347,107
----------
Tobacco -- 6.0%
Philip Morris Cos., Inc. ............................................................... 4,000 181,250
UST, Inc. .............................................................................. 8,600 317,663
----------
498,913
----------
TOTAL COMMON STOCK (COST $7,133,589).................................................. 7,816,625
----------
</TABLE>
40
<PAGE> 48
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER
MATURITY OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 4.8%
Federal National Mortgage Association Discount Notes, 5.76%......... 01/05/98 $ 400,000 $ 399,744
-----------
TOTAL COMMERCIAL PAPER (COST $399,744)............................ 399,744
-----------
SHORT-TERM INVESTMENTS -- 1.6%
Temporary Investment Fund, Inc. -- TempCash......................... 138,970 138,970
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $138,970)...................... 138,970
-----------
TOTAL INVESTMENTS -- 99.9% (COST $7,672,303)...................... 8,355,339
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%..................... 6,650
-----------
NET ASSETS -- 100.0%
(Equivalent to $14.59 per share based on 573,096 shares of capital
stock outstanding)................................................ $ 8,361,989
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($8,361,989/573,096 shares outstanding)............................. $ 14.59
===========
</TABLE>
* Non-income producing.
See accompanying notes to financial statements.
41
<PAGE> 49
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................................... $ 4,811,595 $ -- $ -- $ 675,233 $ 341,732
Interest........................................... 823,766 3,402,299 1,316,924 1,321,545 310,481
Less: foreign taxes withheld..................... (39,820) -- -- (4,670) --
----------- ---------- ---------- ---------- ----------
Total Income..................................... 5,595,541 3,402,299 1,316,924 1,992,108 652,213
----------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fee............................ 740,283 151,852 67,663 199,166 185,551
Administration fee................................. 82,214 34,174 24,562 41,534 39,256
Directors' fee..................................... 10,865 2,453 965 2,287 1,903
Transfer agent fee................................. 6,801 3,241 2,181 1,628 2,791
Custodian fee...................................... 31,201 10,581 4,261 10,681 10,568
Legal fees......................................... 20,238 3,606 753 2,715 3,284
Audit fees......................................... 19,868 5,472 1,748 5,141 3,560
Printing........................................... 52,032 20,323 6,460 16,446 13,788
Miscellaneous...................................... 21,485 5,976 2,509 4,783 (277)
----------- ---------- ---------- ---------- ----------
984,987 237,678 111,102 284,381 260,424
Less: expenses reimbursed by affiliated insurance
company.......................................... -- -- -- -- --
----------- ---------- ---------- ---------- ----------
Total expenses................................... 984,987 237,678 111,102 284,381 260,424
----------- ---------- ---------- ---------- ----------
Net investment income (loss)..................... 4,610,554 3,164,621 1,205,822 1,707,727 391,789
----------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) from:
Investments...................................... 35,634,593 (57) 177,501 2,699,617 3,740,193
Foreign currency related transactions............ (44,944) -- -- (2,008) --
----------- ---------- ---------- ---------- ----------
35,589,649 (57) 177,501 2,697,609 3,740,193
----------- ---------- ---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) from:
Investments...................................... 9,025,359 -- 449,185 4,950,546 3,790,949
Foreign currency related translations............ -- -- -- -- --
----------- ---------- ---------- ---------- ----------
9,025,359 -- 449,185 4,950,546 3,790,949
----------- ---------- ---------- ---------- ----------
Net gain (loss) on investments and foreign
currency transactions........................... 44,615,008 (57) 626,686 7,648,155 7,531,142
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations................................. $49,225,562 $3,164,564 $1,832,508 $9,355,882 $7,922,931
=========== ========== ========== ========== ==========
<CAPTION>
COMMON SENTINEL
INTERNATIONAL STOCK GROWTH
PORTFOLIO PORTFOLIO* PORTFOLIO
- ----------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................................... $ 1,276,041 $ 195,167 $ 67,641
Interest........................................... 155,142 40,472 19,340
Less: foreign taxes withheld..................... (167,716) (1,181) --
---------- ---------- ----------
Total Income..................................... 1,263,467 234,458 86,981
---------- ---------- ----------
EXPENSES:
Investment advisory fee............................ 440,914 35,969 34,396
Administration fee................................. 73,381 44,455 43,746
Directors' fee..................................... 2,628 498 407
Transfer agent fee................................. 1,727 1,464 1,476
Custodian fee...................................... 42,098 6,099 6,978
Legal fees......................................... 9,377 1,345 1,132
Audit fees......................................... 5,016 1,036 850
Printing........................................... 19,645 2,059 1,829
Miscellaneous...................................... 6,200 1,668 1,715
---------- ---------- ----------
600,986 94,593 92,529
Less: expenses reimbursed by affiliated insurance
company.......................................... -- (22,654) (30,617)
---------- ---------- ----------
Total expenses................................... 600,986 71,939 61,912
---------- ---------- ----------
Net investment income (loss)..................... 662,481 162,519 25,069
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) from:
Investments...................................... 4,341,196 271,458 1,668,898
Foreign currency related transactions............ (173,948) (605) --
---------- ---------- ----------
4,167,248 270,853 1,668,898
---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) from:
Investments...................................... 178,787 1,472,234 132,149
Foreign currency related translations............ (4) -- --
---------- ---------- ----------
178,783 1,472,234 132,149
---------- ---------- ----------
Net gain (loss) on investments and foreign
currency transactions........................... 4,346,031 1,743,087 1,801,047
---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations................................. $ 5,008,512 $1,905,606 $1,826,116
========== ========== ==========
</TABLE>
* Through the period ended December 12, 1997 (see note 1).
See accompanying notes to financial statements.
42
<PAGE> 50
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss).............. $ 4,610,554 $ 3,164,621 $ 1,205,822 $ 1,707,727 $ 391,789 $ 662,481
Net realized gain (loss) on investments
and foreign currency related
transactions............................. 35,589,649 (57) 177,501 2,697,609 3,740,193 4,167,248
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations.................... 9,025,359 -- 449,185 4,950,546 3,790,949 178,783
----------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations................ 49,225,562 3,164,564 1,832,508 9,355,882 7,922,931 5,008,512
Distributions:
From net investment income................ (4,690,830) (3,164,621) (1,143,012) (1,626,361) (326,522) (427,579)
From net realized gains................... (23,067,604) -- -- (344,551) (64,760) (3,347,494)
Capital share transactions:
Shares exchanged in acquisition of Common
Stock Portfolio.......................... 13,633,276 -- -- -- -- --
Net contributions from affiliated life
insurance companies...................... 33,340,861 10,142,244 5,573,996 5,251,369 6,944,174 10,324,894
----------- ---------- ---------- ---------- ---------- ----------
Total increase(decrease) in net assets... 68,441,265 10,142,187 6,263,492 12,636,339 14,475,823 11,558,333
NET ASSETS
Beginning of period......................... 198,948,066 54,196,724 17,086,878 43,431,170 34,098,282 50,955,123
----------- ---------- ---------- ---------- ---------- ----------
End of period............................... $267,389,331 $64,338,911 $23,350,370 $56,067,509 $48,574,105 $62,513,456
=========== ========== ========== ========== ========== ==========
<CAPTION>
COMMON SENTINEL
STOCK GROWTH
PORTFOLIO* PORTFOLIO
- ---------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss).............. $ 162,519 $ 25,069
Net realized gain (loss) on investments
and foreign currency related
transactions............................. 270,853 1,668,898
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations.................... 1,472,234 132,149
-------- --------
Net increase (decrease) in net assets
resulting from operations................ 1,905,606 1,826,116
Distributions:
From net investment income................ (187,958) (23,408)
From net realized gains................... (249,309) (3,259)
Capital share transactions:
Shares exchanged in acquisition of Common
Stock Portfolio.......................... (13,633,276) --
Net contributions from affiliated life
insurance companies...................... 5,600,313 898,951
-------- --------
Total increase(decrease) in net assets... (6,564,624) 2,698,400
NET ASSETS
Beginning of period......................... 6,564,624 5,663,589
-------- --------
End of period............................... $ 0 $8,361,989
======== ========
</TABLE>
* Through the period ended December 12, 1997 (see note 1).
See accompanying notes to financial statements.
43
<PAGE> 51
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)................... $ 5,018,462 $ 2,277,978 $ 934,224 $ 1,445,837 $ 326,522
Net realized gain (loss) on sale of
investments................................... 23,063,427 -- (125,017) 344,291 64,760
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations......................... 4,147,912 -- (333,487) 2,694,823 5,078,163
------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations............................... 32,229,801 2,277,978 475,720 4,484,951 5,469,445
Distributions:
From net investment income..................... (4,995,312) (2,277,978) (874,882) (1,390,871) (255,039)
From net realized gains........................ (7,732,422) -- -- (1,471,361) (2,569,743)
Capital share transactions:
Net contributions from affiliated life
insurance companies........................... 17,547,048 19,581,572 3,083,685 5,806,085 7,631,188
------------ ----------- ----------- ----------- -----------
Total increase in net assets.................. 37,049,115 19,581,572 2,684,523 7,428,804 10,275,851
NET ASSETS
Beginning of period.............................. 161,898,951 34,615,152 14,402,355 36,002,366 23,822,431
------------ ----------- ----------- ----------- -----------
End of period.................................... $198,948,066 $54,196,724 $17,086,878 $43,431,170 $34,098,282
============ =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
INTERNATIONAL STOCK GROWTH
PORTFOLIO PORTFOLIO* PORTFOLIO*
- --------------------------------------------------
<S> <<C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)................... $ 472,406 $ 79,759 $ 23,408
Net realized gain (loss) on sale of
investments................................... 3,302,667 (22,148) 3,259
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations......................... 781,570 699,937 550,887
----------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations............................... 4,556,643 757,548 577,554
Distributions:
From net investment income..................... (442,343) (53,716) --
From net realized gains........................ (1,793,161) -- --
Capital share transactions:
Net contributions from affiliated life
insurance companies........................... 11,991,902 5,860,792 5,086,035
----------- ---------- ----------
Total increase in net assets.................. 14,313,041 6,564,624 5,663,589
NET ASSETS
Beginning of period.............................. 36,642,082 -- --
----------- ---------- ----------
End of period.................................... $50,955,123 $6,564,624 $5,663,589
=========== ========== ==========
</TABLE>
* The Common Stock and Sentinel Growth Portfolios commenced operations on
03/18/96.
See accompanying notes to financial statements.
44
<PAGE> 52
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............................. $18.10 $16.36 $14.00 $14.09 $13.73
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................ .35 .46 .47 .43 .38
Net realized and unrealized gain (loss) on investments........... 3.49 2.54 3.41 (.10) .94
------- ------- ------- ------- -------
Total from investment operations.............................. 3.84 3.00 3.88 .33 1.32
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income............. (.38) (.48) (.46) (.41) (.39)
Dividends to shareholders from net capital gains................. (2.10) (.78) (1.06) (.01) (.35)
Dividends to shareholders in excess of net investment income..... (.00) (.00) (.00) (.00) (.22)
------- ------- ------- ------- -------
Total distributions........................................... (2.48) (1.26) (1.52) (.42) (.96)
------- ------- ------- ------- -------
Net asset value, end of period................................... $19.46 $18.10 $16.36 $14.00 $14.09
======= ======= ======= ======= =======
Total return.................................................. 24.32% 19.58% 30.39% 2.40% 9.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................................. 267,389 198,948 161,899 115,191 109,534
Ratios of expenses to average net assets(1)...................... .43% .50% .61% .63% .76%
Ratios of net investment income to average net assets............ 2.01% 2.80% 3.20% 3.10% 2.86%
Portfolio turnover............................................... 108% 72% 61% 63% 51%
Average commission rate(2)....................................... $0.0600 $0.0600 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Growth Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1997, 1996,
1995, 1994, and 1993 were as follows: 0.43%, 0.50%, 0.61%, 0.67%, and
0.76%, respectively.
(2.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1,1995.
See accompanying notes to financial statements.
45
<PAGE> 53
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... .05 .05 .05 .04 .03
------ ------ ------ ------ ------
Total from investment operations....................... .05 .05 .05 .04 .03
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income....... (.05) (.05) (.05) (.04) (.03)
------ ------ ------ ------ ------
Total distributions.................................... (.05) (.05) (.05) (.04) (.03)
------ ------ ------ ------ ------
Net asset value, end of period............................. $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return........................................... 5.33% 5.15% 5.61% 3.81% 2.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)........................... 64,339 54,197 34,615 21,040 12,506
Ratios of expenses to average net assets(1)................ .39% .44% .50% .55% .65%
Ratios of net investment income to average net assets...... 5.21% 5.03% 5.47% 3.86% 2.56%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Money Market Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1997, 1996, 1995, 1994, and 1993 were as follows: 0.39%, 0.44%, 0.50%,
0.59%, and 0.65%, respectively.
See accompanying notes to financial statements.
46
<PAGE> 54
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $10.67 $11.00 $ 9.73 $11.21 $10.73
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ .64 .63 .65 .62 .60
Net realized and unrealized gain (loss) on investments....... .33 (.34) 1.27 (1.23) .48
------ ------ ------ ------ ------
Total from investment operations.......................... .97 .29 1.92 (.61) 1.08
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income......... (.66) (.62) (.65) (.60) (.60)
Dividends to shareholders from net capital gains............. (.00) (.00) (.00) (.27) (.00)
------ ------ ------ ------ ------
Total distributions....................................... (.66) (.62) (.65) (.87) (.60)
------ ------ ------ ------ ------
Net asset value, end of period............................... $10.98 $10.67 $11.00 $ 9.73 $11.21
====== ====== ====== ====== ======
Total return.............................................. 9.50% 2.86% 20.45% (5.62)% 10.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)............................. 23,350 17,087 14,402 10,098 10,160
Ratios of expenses to average net assets(1).................. .57% .56% .60% .68% .75%
Ratios of net investment income to average net assets........ 6.24% 6.08% 6.36% 6.14% 5.53%
Portfolio turnover........................................... 105% 133% 206% 151% 71%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Bond Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1997, 1996,
1995, 1994, and 1993 were as follows: 0.57%, 0.56%, 0.60%, 0.70%, and
0.75%, respectively.
See accompanying notes to financial statements.
47
<PAGE> 55
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $14.68 $ 14.19 $ 11.94 $ 13.27 $ 12.25
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ .54 .51 .55 .53 .40
Net realized and unrealized gain (loss) on investments....... 2.49 1.07 2.28 (.77) 1.00
------ ------ ------ ------ ------
Total from investment operations.......................... 3.03 1.58 2.83 (.24) 1.40
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income......... (.53) (.51) (.57) (.49) (.38)
Dividends to shareholders from net capital gains............. (.12) (.58) (.01) (.60) (.00)
------ ------ ------ ------ ------
Total distributions....................................... (.65) (1.09) (.58) (1.09) (.38)
------ ------ ------ ------ ------
Net asset value, end of period............................... $17.06 $ 14.68 $ 14.19 $ 11.94 $ 13.27
====== ====== ====== ====== ======
Total return.............................................. 21.23%(2) 11.88% 24.43% (1.82)% 11.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)............................. 56,068 43,431 36,002 29,363 28,984
Ratios of expenses to average net assets(1).................. .58% .60% .66% .67% .80%
Ratios of net investment income to average net assets........ 3.47% 3.68% 4.22% 4.34% 3.36%
Portfolio turnover........................................... 99% 106% 130% 75% 89%
Average commission rate(2)................................... $0.0600 $0.0600 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Managed Portfolio before reimbursement of expenses
by affiliated insurance company for the years ended December 31, 1997,
1996, 1995, 1994, and 1993 were as follows: 0.58%, 0.60%, 0.66%, 0.73%, and
0.80%, respectively.
(2.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
48
<PAGE> 56
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $18.52 $17.38 $15.45 $15.45 $14.72
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ .17 .17 .20 (.01) (.01)
Net realized and unrealized gain (loss) on investments....... 3.72 3.03 1.86 .01 .77
----- ----- ----- ----- -----
Total from investment operations.......................... 3.89 3.20 2.06 .00 .76
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income......... (.18) (.19) (.00) (.00) (.03)
Dividends to shareholders from net capital gains............. (.04) (1.87) (.13) (.00) (.00)
----- ----- ----- ----- -----
Total distributions....................................... (.22) (2.06) (.13) (.00) (.03)
----- ----- ----- ----- -----
Net asset value, end of period............................... $22.19 $18.52 $17.38 $15.45 $15.45
===== ===== ===== ===== =====
Total return.............................................. 21.21% 21.00% 13.48% 0.00% 5.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)............................. 48,574 34,098 23,822 15,430 12,223
Ratios of expenses to average net assets(1).................. .63% .68% .76% .86% .90%
Ratios of net investment income to average net assets........ .95% 1.14% 1.32% (.10)% (.07)%
Portfolio turnover........................................... 37% 47% 89% 60% 60%
Average commission rate(2)................................... $0.0600 $0.0600 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Aggressive Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1997, 1996, 1995, 1994, and 1993 were as follows: 0.63%, 0.68%, 0.76%,
0.89%, and 0.90%, respectively.
(2.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission.This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
49
<PAGE> 57
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
TO TO TO TO TO
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $13.41 $12.86 $11.63 $11.87 $9.00
-------- -------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... .11 .11 .16 .05 .06
Net realized and unrealized gain (loss) on
investments............................................ 1.08 1.23 1.45 (.02) 3.09
-------- -------- ------ ------ ------
Total from investment operations..................... 1.19 1.34 1.61 .03 3.15
-------- -------- ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income.... (.11) (.16) (.07) (.03) (.08)
Dividends to shareholders from net capital gains........ (.88) (.63) (.31) (.24) (.20)
-------- -------- ------ ------ ------
Total distributions.................................. (.99) (.79) (.38) (.27) (.28)
-------- -------- ------ ------ ------
Net asset value, end of period.......................... $13.61 $13.41 $12.86 $11.63 $11.87
======== ======== ====== ====== ======
Total return......................................... 9.66% 10.89% 14.31% .26% 36.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)........................ 62,513 50,955 36,642 26,212 13,682
Ratios of expenses to average net assets(1)............. 1.02% 1.05% 1.15% 1.32% 1.50%
Ratios of net investment income to average net assets... 1.13% 1.08% 1.21% .76% .68%
Portfolio turnover...................................... 37% 35% 45% 32% 37%
Average commission rate(2).............................. $0.0234 $0.0376 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the International Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1997, 1996, 1995, 1994, and 1993 were as follows: 1.02%, 1.05%, 1.15%,
1.32%, and 1.50%, respectively.
(2.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
50
<PAGE> 58
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 03/18/96(2)
TO TO
12/12/97(3) 12/31/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period.............................................. $11.31 $10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................................. .20 .15
Net realized and unrealized gain (loss) on investments............................ 2.56 1.26
------- -------
Total from investment operations.............................................. 2.76 1.41
------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income.............................. (.25) (.10)
Dividends to shareholders from net capital gains.................................. (.25) (.00)
------- -------
Total distributions........................................................... (.50) (.10)
------- -------
Net asset value, end of period.................................................... $13.57 $11.31
======= =======
Total return(4)............................................................... 24.57% 14.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).................................................. 0 6,565
Ratios of expenses to average net assets (annualized)(1).......................... .80% .80%
Ratios of net investment income to average net assets (annualized)................ 1.81% 1.82%
Portfolio turnover................................................................ 22% 13%
Average commission rate(5)........................................................ $0.0600 $0.0600
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Common Stock Portfolio before reimbursement of
expenses by affiliated insurance company for the periods ended December 12,
1997 and December 31, 1996 were as follows: 1.05%, 1.43% (annualized).
(2.) Commencement of operations.
(3.) Portfolio was acquired by Growth Portfolio.
(4.) Total returns for periods less than one year are not annualized.
(5.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
51
<PAGE> 59
- --------------------------------------------------------------------------------
Market Street Funds, Inc.
Financial Highlights -- Concluded
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SENTINEL GROWTH
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/97 03/18/96(2)
TO TO
12/31/97 12/31/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period............................................... $11.14 $10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................................. .04 .05
Net realized and unrealized gain (loss) on investments............................. 3.47 1.09
------- -------
Total from investment operations............................................... 3.51 1.14
------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income............................... (.05) (.00)
Dividends to shareholders from net capital gains................................... (.01) (.00)
------- -------
Total distributions............................................................ (.06) (.00)
------- -------
Net asset value, end of period..................................................... $14.59 $11.14
======= =======
Total return................................................................... 31.58% 11.40%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................................................... 8,362 5,664
Ratios of expenses to average net assets (annualized)(1)........................... .90% .90%
Ratios of net investment income to average net assets (annualized)................. .36% .57%
Portfolio turnover................................................................. 155% 75%
Average commission rate(4)......................................................... $0.0600 $0.0594
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Sentinel Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the year ended December 31,
1997 and the period ended December 31, 1996 was as follows: 1.35%, 1.51%
(annualized).
(2.) Commencement of operations.
(3.) Total returns for periods less than one year are not annualized.
(4.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
52
<PAGE> 60
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Market Street Fund, Inc. (Fund) is registered as an open-end diversified
management company under the Investment Company Act of 1940, as amended. As a
"series" type of mutual fund, the Fund issues separate classes (or series) of
stock currently consisting of the Growth Portfolio, Money Market Portfolio, Bond
Portfolio, Managed Portfolio, Aggressive Growth Portfolio, International
Portfolio, Common Stock Portfolio and Sentinel Growth Portfolio. The Fund serves
as an investment medium for modified premium and flexible premium adjustable
variable life insurance policies and individual flexible premium deferred
variable annuity contracts (Policies) issued by Provident Mutual Life Insurance
Company (PMLIC) and for flexible premium deferred variable annuity contracts
issued by Providentmutual Life and Annuity Company of America (PLACA) and
policies issued by National Life Insurance Company of Vermont (NLICV). The Fund
also serves as the investment medium for single premium and scheduled premium
variable life insurance policies which are no longer being issued.
At the end of business on December 12, 1997, the Growth Portfolio acquired all
the net assets of the Common Stock Portfolio pursuant to a plan of
reorganization. The acquisition was accomplished by a tax-free exchange of
716,786 shares of the Growth Portfolio (valued at $13,633,276) for the 1,004,770
shares of the Common Stock Portfolio outstanding on December 12, 1997. The
Common Stock Portfolio's net assets of $13,633,276 at that date, including
$2,172,171 of net unrealized appreciation (depreciation), were combined with
those of the Growth Portfolio. The aggregate net assets of the Growth Portfolio
and the Common Stock Portfolio immediately before the acquisition were
$246,256,160 and $13,633,276, respectively and the combined net assets of the
Growth Portfolio immediately following the acquisition were $259,889,436.
2. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by each
Fund in preparation of its financial statements. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. Certain prior period amounts have been restated to conform with
current year presentation.
Valuation of Investments
Bonds are carried at market value based on the last bid price on a national
securities exchange or on quoted prices from a third-party pricing service.
Investments in common and preferred stocks primarily traded on recognized U.S.
or foreign securities exchanges are valued at the last sale price on exchanges
on the last business day of the period, or, if there was no sale, at the last
bid price on that day. Short-term investments with maturities of less than 60
days and Money Market Portfolio investments are valued at amortized cost which
approximates market value.
53
<PAGE> 61
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
Investments
Security transactions are accounted for on the trade date. The cost of
investment securities sold is determined by use of the specific identification
method for both financial reporting and income tax purposes. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-dividend
date.
Dollar Rolls
The Bond and Managed Portfolios may enter into dollar rolls in which the
Portfolio sells securities for delivery and simultaneously contracts to
repurchase the same security at a fixed price on a specified future date. During
the roll period the Portfolio forgoes accrued interest paid on the securities.
The Portfolio will be compensated by the interest earned on the cash proceeds of
the initial sale (which are invested in short-term investments) and by the lower
repurchase price at the future date (the "drop"). The drop, which is recorded as
deferred income, is amortized over the period between the trade date and the
settlement date. All realized gains are recorded at the beginning of each roll.
A portfolio engages in dollar rolls for the purpose of enhancing its yield.
Dollar Rolls involve a risk of loss if the value of the security to be
repurchased declines prior to settlement date, which risk is in addition to the
risk of decline in the value of a Portfolio's other assets. The balance of
dollar rolls outstanding during the year ended December 31, 1997 was $506,027 in
the Bond Portfolio and $2,024,107 in the Managed Portfolio.
Foreign Currency Translations
Foreign currency amounts are translated into U.S. Dollars on the following
bases:
(i) Market value of investment securities, assets and liabilities, at the
daily rate of exchange;
(ii) Purchases and sales of investment securities, at the rate of exchange
prevailing on the respective dates of such transactions. Exchange gains or
losses are recognized upon settlement;
(iii) Income and expenses, at the rate of exchange prevailing on the
respective dates of such transactions. Exchange gains or losses are
recognized upon ultimate receipt or disbursement.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. Dollar denominated
transactions as a result of, among other factors, the lack of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
The Fund does not isolate that portion of the results of operations derived from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Dividends to Shareholders
Dividends of investment income of the Money Market Portfolio are declared daily
and paid monthly. The Growth Portfolio, Bond Portfolio,
54
<PAGE> 62
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
Managed Portfolio, and Common Stock Portfolio declare and pay dividends of
investment income quarterly. The Aggressive Growth Portfolio, International
Portfolio, and Sentinel Growth Portfolio declare and pay dividends of investment
income annually. For all Portfolios, distributions of capital gains are declared
and paid annually.
Federal Income Taxes
No provision is made for Federal taxes as it is the Fund's intention to have
each Portfolio continue to qualify as a regulated investment company and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from Federal income taxes.
3. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Investment advisory agreements have been approved, whereby Sentinel Advisers
Company (SAC), a Vermont General Partnership, is advisor for the Growth, Money
Market, Bond, Managed, Aggressive Growth, Common Stock Portfolio and Sentinel
Growth Portfolios. With respect to the Growth Portfolio, Newbold's Asset
Management for the period January 1, 1997 through April 30, 1997 and SAC for the
period May 1, 1997 through December 31, 1997 were both compensated monthly at an
effective annual rate of 0.50% of the first $20 million of the average daily net
assets of the portfolio, 0.40% of the next $20 million and 0.30% of net assets
in excess of $40 million. SAC is compensated monthly at an effective annual rate
of 0.25% of the average daily net assets of the Money Market Portfolio. With
respect to the Bond Portfolio, SAC is compensated monthly at the effective
annual rate of 0.35% of the first $100 million of the average daily net assets
of the portfolio and 0.30% of net assets in excess of $100 million. With respect
to the Managed Portfolio, SAC is compensated monthly at the effective annual
rate of 0.40% of the first $100 million of the average daily net assets of the
portfolio and 0.35% of net assets in excess of $100 million. With respect to the
Aggressive Growth Portfolio, SAC is compensated monthly at the effective annual
rate of 0.50% of the first $20 million of the average daily net assets of the
portfolio, 0.40% of the next $20 million and 0.30% of net assets in excess of
$40 million. SAC also served as investment advisor through the period ended
December 12, 1997 for the Common Stock Portfolio. With respect to the Common
Stock Portfolio, SAC was compensated monthly at the effective annual rate of
0.40% of the first $100 million of the average daily net assets of the portfolio
and 0.35% of net assets in excess of $100 million. With respect to the Sentinel
Growth Portfolio, SAC is compensated monthly at an effective annual rate of
0.50% of the first $20 million of the average daily net assets of the portfolio,
0.40% of the next $20 million and 0.30% of the net assets in excess of $40
million. Provident Mutual Investment Management Co. (PIMC) is the adviser for
the International Portfolio and is compensated monthly at an effective annual
rate of 0.75% of the first $500 million of the average daily net assets of the
portfolio and 0.60% of assets in excess of $500 million. The Boston Company
Asset Management, Inc. ("TBC") is sub-adviser to the International Portfolio.
PMLIC agrees to reimburse the Growth, Money Market, Bond, Managed, and
Aggressive Growth
55
<PAGE> 63
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
Portfolios for operating expenses, excluding investment advisory fees, and costs
of litigation and indemnification not covered by insurance, in excess of an
annual rate of 0.40% of the average daily net asset values. The International
Portfolio is reimbursed for such expenses in excess of an annual rate of 0.75%
of the average daily net asset value. NLICV agrees to reimburse the Common Stock
portfolio, through the period ended December 12, 1997, and the Sentinel Growth
Portfolio for operating expenses, excluding investment advisory fees and costs
of litigation and indemnification not covered by insurance, in excess of an
annual rate of .40% of the average net asset values.
4. NET ASSETS
At December 31, 1997, the Portfolios' net assets consisted of:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net contribution from shareholders............ $192,623,030 $64,338,969 $22,382,865 $40,983,184 $34,466,305 $53,991,110
Undistributed net investment income........... 1,105,932 -- 330,523 463,796 391,789 488,533
Undistributed net realized gains.............. 35,634,593 -- 3,599 2,699,617 3,740,193 4,341,196
Accumulated loss on investment transactions... -- (58) -- -- -- --
Net unrealized appreciation (depreciation) on
investments and foreign currency............. 38,025,776 -- 633,883 11,920,912 9,975,818 3,692,617
------------ ----------- ----------- ----------- ----------- -----------
$267,389,331 $64,338,911 $23,350,370 $56,067,509 $48,574,105 $62,513,456
============ =========== =========== =========== =========== ===========
<CAPTION>
SENTINEL
GROWTH
PORTFOLIO
-------------------------------------
<S> <C>
Net contribution from shareholders............ $5,984,986
Undistributed net investment income........... 25,069
Undistributed net realized gains.............. 1,668,898
Accumulated loss on investment transactions... --
Net unrealized appreciation (depreciation) on
investments and foreign currency............. 683,036
----------
$8,361,989
==========
</TABLE>
5. PURCHASES AND SALES OF INVESTMENTS (EXCLUDING SHORT-TERM SECURITIES)
Purchases and proceeds on sales of investments for the portfolios, for the year
ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PURCHASES
U.S. Gov't Obligations....................... $ -- $ -- $12,519,574 $35,816,107 $ -- $ --
Corporate Bonds.............................. -- -- 14,373,199 7,615,933 -- --
Common Stock................................. 239,781,119 -- -- 10,229,701 23,491,605 28,754,019
------------ ----------- ----------- ----------- ----------- -----------
Total Purchases.............................. $239,781,119 $ -- $26,892,773 $53,661,741 $24,491,605 $28,754,019
============ =========== =========== =========== =========== ===========
SALES
U.S. Gov't Obligations....................... $ -- $ -- $ 7,778,902 $30,221,084 $ -- $ --
Corporate Bonds.............................. -- -- 10,884,335 7,246,467 -- --
Common Stock................................. 231,298,182 -- -- 7,855,306 13,397,867 20,664,346
------------ ----------- ----------- ----------- ----------- -----------
Total Sales.................................. $231,298,182 $ -- $18,663,237 $45,322,859 $13,397,867 $20,664,346
============ =========== =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
STOCK GROWTH
PORTFOLIO* PORTFOLIO
-------------------------------------
<S> <C> <C>
PURCHASES
U.S. Gov't Obligations....................... $ -- $ --
Corporate Bonds.............................. -- --
Common Stock................................. 6,180,508 10,892,861
---------- -----------
Total Purchases.............................. $6,180,508 $10,892,861
========== ===========
SALES
U.S. Gov't Obligations....................... $ -- $ --
Corporate Bonds.............................. -- --
Common Stock................................. 2,098,229 10,150,853
---------- -----------
Total Sales.................................. $2,098,229 $10,150,853
========== ===========
</TABLE>
* Through the period ended December 12, 1997.
56
<PAGE> 64
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
6. TAX BASIS OF INVESTMENTS
Investment information based on the cost of the securities for Federal income
tax purposes held at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross unrealized appreciation...... $ 41,273,495 $ -- $ 634,129 $12,016,698 $10,679,796 $ 9,653,370
Aggregate gross unrealized depreciation...... (3,247,719) -- (746) (95,786) (703,978) (5,956,365)
------------ ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation)... $ 38,025,776 $ -- $ 633,383 $11,920,912 $ 9,975,818 $ 3,697,005
============ =========== =========== =========== =========== ===========
Aggregate cost of securities for federal
income tax purposes......................... $230,505,985 $64,680,706 $22,964,106 $44,479,146 $39,361,294 $ 57,269,359
============ =========== =========== =========== =========== ===========
<CAPTION>
SENTINEL
GROWTH
PORTFOLIO
-------------------------------------
<S> <C>
Aggregate gross unrealized appreciation...... $ 890,758
Aggregate gross unrealized depreciation...... (207,722)
----------
Net unrealized appreciation (depreciation)... $ 683,036
==========
Aggregate cost of securities for federal
income tax purposes......................... $7,672,303
==========
</TABLE>
7. AUTHORIZED CAPITAL STOCK AND CAPITAL STOCK TRANSACTIONS
On December 31, 1997, there were 1 billion 200 million shares of $0.01 par value
capital stock authorized for the Fund. The shares of capital stock are divided
into following series: Growth Portfolio, Money Market Portfolio, Bond Portfolio,
Managed Portfolio, Aggressive Growth Portfolio, International Portfolio, Common
Stock Portfolio and Sentinel Growth Portfolio. The Growth Portfolio consists of
50 million shares, the Money Market Portfolio consists of 150 million shares;
each of the other series consists of 5 million shares.
Transactions in capital stock for the year ended December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................................... 1,328,421 $ 23,557,083 116,153,761 $ 116,153,761 608,494 $ 6,478,790
Shares redeemed................................. (1,033,097) (18,272,623) (109,109,613) (109,109,613) (192,816) (2,047,805)
Shares reinvested............................... 1,736,600 28,056,401 3,098,096 3,098,096 108,875 1,143,011
--------- ----------- ----------- ------------ ------- ----------
Net contributions from affiliated insurance
companies..................................... 2,031,924 $ 33,340,861 10,142,244 $ 10,142,244 524,553 $ 5,573,996
========= =========== =========== ============ ======= ==========
Shares exchanged in acquisition of Common Stock
Portfolio..................................... 716,786 13,633,276 -- -- -- --
--------- ----------- ----------- ------------ ------- ----------
<CAPTION>
MANAGED PORTFOLIO
- -------------------------------------------------
SHARES AMOUNT
- -------------------------------------------------
<S> <C> <C>
Shares sold...................................... 538,094 $ 8,544,898
Shares redeemed.................................. (338,821) (5,264,441)
Shares reinvested................................ 129,171 1,970,912
-------- -----------
Net contributions from affiliated insurance
companies....................................... 328,444 $ 5,251,369
======== ===========
Shares exchanged in acquisition of Common Stock
Portfolio....................................... -- --
-------- -----------
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................ 513,839 $10,376,849 970,932 $13,015,260
Shares redeemed............................................ (187,215) (3,823,958) (484,512) (6,465,439)
Shares reinvested.......................................... 21,347 391,283 305,922 3,775,073
-------- ----------- -------- -----------
Net contributions from affiliated insurance companies...... 347,971 $ 6,944,174 792,342 $10,324,894
======== =========== ======== ===========
Shares exchanged in acquisition of Common Stock
Portfolio................................................. -- -- -- --
-------- ----------- -------- -----------
<CAPTION>
COMMON
STOCK SENTINEL GROWTH
PORTFOLIO* PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................ 443,566 $ 5,866,422 69,861 $ 976,211
Shares redeemed............................................ (30,043) (405,410) (7,419) (103,927)
Shares reinvested.......................................... 10,980 139,301 2,383 26,667
------- ----------- ------ ---------
Net contributions from affiliated insurance companies...... 424,503 $ 5,600,313 64,825 $ 898,951
======= =========== ====== =========
Shares exchanged in acquisition of Common Stock
Portfolio................................................. (1,004,770) (13,633,276) -- --
------- ----------- ------ ---------
</TABLE>
* Through the period ended December 12, 1997.
57
<PAGE> 65
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997 -- Continued
- --------------------------------------------------------------------------------
Transactions in capital stock for the year ended December 31, 1996 were as
follows(1):
<TABLE>
<CAPTION>
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................................ 1,276,805 $ 20,944,472 82,625,391 $ 82,625,391 382,375 $ 4,040,320
Shares redeemed.................................... (981,738) (16,125,158) (65,247,831) (65,247,831) (173,162) (1,831,517)
Shares reinvested.................................. 803,008 12,727,734 2,204,012 2,204,012 83,086 874,882
--------- ----------- ------- ------------ -------- -----------
Net contributions from affiliated insurance
companies......................................... 1,098,075 $ 17,547,048 19,581,572 $ 19,581,572 292,299 $ 3,083,685
========= =========== ======= ============ ======== ===========
<CAPTION>
MANAGED PORTFOLIO
- -----------------------------------------------------------------------------
SHARES AMOUNT
- -----------------------------------------------------------------------------
<S> <C> <C>
Shares sold......................................... 506,385 $ 7,070,251
Shares redeemed..................................... (296,312) (4,126,398)
Shares reinvested................................... 209,781 2,862,232
-------- --------
Net contributions from affiliated insurance
companies.......................................... 419,854 $ 5,806,085
======== ========
</TABLE>
<TABLE>
<CAPTION> AGGRESSIVE GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 441,008 $ 7,446,728 987,809 $12,532,647
Shares redeemed................................................ (156,497) (2,640,322) (218,584) (2,776,249)
Shares reinvested.............................................. 185,719 2,824,782 180,866 2,235,504
-------- --------- -------- -----------
Net contributions from affiliated insurance companies.......... 470,230 $ 7,631,188 950,091 $11,991,902
======== ========= ======== ===========
<CAPTION> COMMON
STOCK SENTINEL GROWTH
PORTFOLIO PORTFOLIO
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 577,728 $5,835,026 508,648 $5,090,047
Shares redeemed................................................ (2,588) (27,950) (377) (4,012)
Shares reinvested.............................................. 5,127 53,716 -- --
------- ---------- ------- ----------
Net contributions from affiliated insurance companies.......... 580,267 $5,860,792 508,271 $5,086,035
======= ========== ======= ==========
</TABLE>
(1) The Common Stock and Sentinel Growth Portfolios commenced operations on
3/18/96.
58
<PAGE> 66
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1997 -- Concluded
- --------------------------------------------------------------------------------
8. PRINCIPAL UNDERWRITER
1717 Capital Management Company serves, without compensation, as the principal
underwriter for sale of the Fund shares to the Accounts. 1717 Capital Management
Company is an indirect wholly-owned subsidiary of PMLIC.
9. SUBSEQUENT DIVIDEND
On December 31, 1997, the Board of Directors declared the following net
investment income and capital gain dividends to shareholders of record on
December 31, 1997, ex-dividend date January 5, 1998, payable on January 7, 1998
as follows:
<TABLE>
<CAPTION>
TOTAL PER SHARE
------------------------- ---------------------
NET NET
INVESTMENT CAPITAL INVESTMENT CAPITAL
PORTFOLIO INCOME GAIN INCOME GAIN
- ------------------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Growth............. $1,105,932 $35,634,593 $.0805 $2.5932
Bond............... 330,523 3,599 .1554 .0017
Managed............ 463,796 2,699,617 .1411 .8215
Aggressive Growth.. 391,789 3,740,193 .1790 1.7088
International...... 278,162 4,341,196 .0606 .9452
Sentinel Growth.... 25,069 1,688,898 .0437 2.9121
</TABLE>
59
<PAGE> 67
[PROVIDENT MUTUAL LOGO]
P. O. BOX 15750
WILMINGTON, DE 19850-5750
_______________________
BULK RATE
U.S. POSTAGE
PAID
WILMINGTON, DE
PERMIT NO. 1387
_______________________
Form 16169 12.97
